The US dollar saw a brief rebound against the euro and yen on Tuesday, indicating signs of stabilization after a significant drop last week. In the previous week, the dollar index dropped over 3%, sparking various speculations about its future trend. While the current rebound has offered some breathing room, investors remain cautiously observant due to the erratic tariff policies of the Trump administration.
On Tuesday, the dollar rose 0.41% against the euro to 1.1326; slightly increased by 0.12% against the yen, trading at 143.16, close to the six-month low of 142.05 reached last Friday; and strongly rebounded by 0.91% against the Swiss franc to 0.822 francs, recovering from the ten-year low recorded last week. Among other currencies, the pound rose 0.15% to $1.3209; the Australian dollar increased by 0.32% to $0.6345; and the New Zealand dollar rose by 0.39% to $0.5899, having earlier touched $0.5943 - the highest since November last year.
Despite the dollar's short-term strength, market sentiment remains troubled by the Trump administration's unpredictable trade policies. Previously, President Trump mentioned considering adjustments to tariffs on imported cars from countries like Mexico. Although this statement slightly eased market tensions, the overall policy direction remains unclear, affecting investor confidence in US assets.
UBS foreign exchange and macro strategist Vassili Serebriakov noted that the current dollar movement is more influenced by asset liquidity rather than traditional interest rate differentials. He commented, “Investors are reassessing their confidence in the US economy and the long-term impact of policy stability.” He further added that factors driving the dollar's weakness include economic slowdown, policy uncertainty, and improved confidence in the European market.
ING analysts Francesco Pesole and Benjamin Schroeder mentioned in a report that the euro/dollar pair is currently one of the most overvalued currency pairs, reflecting the market's use of the euro as a "safe haven" against diminishing confidence in the dollar. They believe that as funds continue to flow from the US to European markets, the high valuation of the euro may persist.
On the data front, US import prices unexpectedly fell in March, primarily due to rising energy costs, another sign of slowing inflation ahead of the full implementation of tariffs. In Germany, investor confidence in April saw its largest decline since the Ukraine crisis, due to concerns about trade tensions. The market expects the European Central Bank to announce a 25 basis point rate cut at the conclusion of its meeting on Thursday to address economic pressures.
In Asia, Japan's Minister for Economic Revitalization Yasutoshi Nishimura stated that Japan will seek the removal of additional tariffs imposed earlier and has set off for a three-day visit to Washington. This diplomatic effort has also become a focal point for observing the yen's movement.
TD Securities strategist Prashant Newnaha pointed out that last week's sharp decline in the dollar triggered an asset reallocation trend, where many investors opted to deleverage and withdraw from US assets. This week, with trading days shortened by holidays, the market's overall tone leans towards calmness, but potential policy changes could still cause localized fluctuations.
