On Monday, the US dollar softened against major currencies as the market closely watched the potential wide-ranging impacts of President Trump's tariff policies. Investors adopted a cautious stance ahead of the Federal Reserve's policy decision, with risk aversion driving funds into other currencies and asset classes.
The dollar fell 0.73% against the yen, trading at 143.885; dropped 0.50% against the Swiss franc, at 0.82255; and was also under pressure against the euro, which rose 0.15% to 1.1316 dollars. Meanwhile, the British pound rose 0.21% to 1.3295 dollars, as the market anticipated the Bank of England would cut interest rates by another 25 basis points to 4.25% during its meeting on Thursday.
In Asia-Pacific markets, the dollar was equally under pressure, with the Australian dollar rising to its highest point since last December at 0.64935 dollars, showing significant intraday gains. The Australian dollar closed at 0.6452 dollars, up 0.15% for the day. Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that the dollar's weakness against Asian currencies was partly due to investors unwinding large unhedged positions in anticipation of more US tariffs, which boosted non-US currencies.
Recently, in an interview, Trump reiterated his firm stance on tariff policies and announced a 100% tariff on films made outside the US. He claimed this move would "ultimately make Americans richer," although specific implementation details were not yet disclosed. US Treasury Secretary Bessant publicly defended the President's policies on Monday, stating that tax cuts and deregulation measures would lead to long-term economic growth.
Juan Perez, trading manager at Monex USA, pointed out that Trump's reinforcement of tariff policies indicated he hadn't shifted towards a free trade stance, impacting confidence in the dollar market. "The market is currently experiencing a confidence shake-up, where investors are no longer as reliant on the US market as before, and this sentiment has spread to the US bond market," Perez added.
As for the Federal Reserve, investors are eagerly awaiting the conclusion of the monetary policy meeting on Wednesday. Although the market generally expects no changes at this meeting, Powell's speech will be closely analyzed for future interest rate signals. Despite indicating he wouldn’t prematurely remove Fed Chair Powell from his position, Trump called him "stiff" and reiterated his call for rate cuts.
Expectations for a rate cut in June have sharply dropped from 64% a month ago to 37%. Both Goldman Sachs and Barclays have delayed their forecast for the first rate cut to July from June.
On the economic data front, the US Institute of Supply Management (ISM) reported that the services sector grew more than expected in April, temporarily narrowing the dollar's drop against the yen. However, the overall market trend remains unfavorable to the dollar.
In Europe, the market is also watching the upcoming rate meetings of the Swedish and Norwegian central banks, with expectations that both countries will maintain current rates.
Overall, Trump's trade policies and upcoming global central bank decisions have jointly influenced the current forex market trends, with investors continuing to assess the far-reaching impacts of policy uncertainty on the economy and exchange rate landscape.
