Dollar Falls to Three-month Low as Tariffs and Growth Fears Rattle Markets

04/03/2025 05:51 AST

The dollar fell to a three-month low on Tuesday as concerns about slowing growth and the impact from tariffs on the US economy outweighed any potential boost from the ramping up of levies on Canada, Mexico and China.

President Donald Trump's new 25% tariffs on goods from Mexico and Canada took effect, along with a doubling of duties on Chinese goods to 20%, at 12:01 a.m. EST (0501 GMT).

In response, China said it will impose additional tariffs of 10-15% on certain US imports from March 10. Canada has said that retaliatory tariffs on the United States would take effect on Tuesday and Mexico is expected to follow suit, Reuters reported.

Worries of a trade war and the hit to other countries' economies might be expected to boost the US dollar, but recent weak economic data has weighed on the currency and bond yields in the United States.

Concerns about duties on imports dominated commentary from manufacturers in the weak Institute for Supply Management survey on Monday, which continued a run of tepid data.

The US dollar index, which tracks the currency against six peers, fell 0.54% to 105.96, its lowest since December.

"While the US is now broadening its tariff regime to Canada and Mexico, weak domestic US activity... is preventing the dollar from strengthening on the tariff news," said Chris Turner, global head of markets at ING.

Investors flocked to traditional safe-haven currencies the Japanese yen and Swiss franc, which were both up almost 1%, as growth and tariff fears knocked global stocks on Tuesday.

The Canadian dollar was around 0.45% stronger at 1.4471 per US dollar, having hit a one-month low of 1.4542 late on Monday as tariffs were confirmed.

The Mexican peso was last down roughly 0.3% at 20.76 per dollar, after earlier touching its lowest since February 3.

Analysts said many in the market were hoping tariffs might quickly be lifted if deals can be struck, much as the initial threat of levies against Canada and Mexico was halted in February.

"The size of initial moves lower for the Canadian dollar and Mexican peso has been relatively modest considering the scale of the tariffs that have been put in place," said Lee Hardman, senior currency analyst at Japanese bank MUFG.

"The price action suggests that market participants remain hopeful that the tariff hikes won't remain in place for long helping to limit trade and economic disruption."

Asharq Al Awsat