Dollar falls, yen hits 5-week high as markets weigh Trump tariff vow

The US dollar fell to a one-week low against its major peers on Wednesday as investors became wary of President-elect Donald Trump’s tariff promises as they rebalanced their portfolios ahead of the end of the month.

Markets will look to the Personal Consumption Expenditures (PCE) price index later on Wednesday before US markets close for the Thanksgiving holiday on Thursday.

Trump’s pledge on Monday of big tariffs on the United States’ three biggest trading partners, Canada, Mexico and China, has investors worried.

Markets will remain bullish on announcements and expectations of a possible U-turn from Trump, who takes office in late January.

Some analysts argued that inflationary risks could deter Trump from taking more disruptive measures.

“We believe Trump realizes that his victory is almost entirely due to the 3i – inflation, inequality and immigration – with prices being the key,” said Victor Shvets, global head of desk strategy at Macquarie Capital.

“Unless there is an improvement, voter retaliation could be severe, and not long, because within 12 months, the mid-terms will dominate,” he added.

Schwetz noted that Trump has chosen Scott Bessant as Treasury Secretary, who is expected to rein in the US deficit and use tariffs as a negotiating tool.

The dollar index, which measures the greenback against six rivals, was last down 0.45% at 106.42, after reaching 106.33, the lowest since Nov. 20. It had risen nearly 30% since November 6, the day after the US election.

“The recent sharp appreciation of the dollar largely reduces asset values ​​in dollars outside the US and therefore increases the rebalancing need to sell dollars at the end of the month,” said Sherrill Dong, forex strategist at Barclays.

The yen outperformed on rising bets on a December rate hike in Japan and position adjustments.

The dollar fell more than 1% against the yen, with the selloff accelerating after the cross broke below its 200-day moving average at 151.998.

Analysts expressed some relief that the country is not in the firing line of Trump’s potential tariffs.

“Japan has a strong hand in addressing US trade concerns,” said Jane Foley, senior forex strategist at RaboBank.

It is “the US’s largest foreign holder of US Treasuries and the largest provider of foreign direct investment in the US,” she added.

Against the yen, the dollar was last down 1.09% at 151.58, after touching 151.20, which was touched on Oct. 23 was the next lowest. The greenback fell nearly 2% in two sessions.

“The fact that tariffs against China are now only to be increased by 10% and not 60%, as previously threatened, was interpreted positively for the yen,” said Commerzbank strategist Carsten Fritsch.

Data last week showed that Japan’s exports expanded faster than expected in October, led by increased demand for chip equipment in China.

China’s offshore yuan was flat at 7.2582, the lowest since late July, after touching 7.2730 a day earlier.

Analysts said the Japanese currency was already priced in some geopolitical risk premium.

A ceasefire between Israel and the Iran-backed group Hezbollah came into force on Wednesday, under a deal aimed at ending hostilities across the Israeli-Lebanese border.

The euro was up 0.37% at $1.0528.

The single currency reacted with relief that Trump did not mention European trade. However, stocks of European car makers fell sharply on Tuesday as they have huge production capacity in Mexico that is sold to the US.

Against its Canadian counterpart on Tuesday, the greenback was almost unchanged at C$1.4054, after touching a 4-1/2-year high of $1.4178 on Tuesday.

The dollar hit its highest level against the Mexican peso since July 2022 and was last down 0.20% on the day.

The New Zealand dollar rose after the Reserve Bank of New Zealand cut benchmark rates by 50 basis points to 4.25% while inflation moved closer to the midpoint of its target range.

The Australian dollar gained $0.6480, up 0.10% after domestic consumer price inflation hit a three-year low in October.

Among cryptocurrencies, Bitcoin rose 1.8% to $93,271, down from recent highs.