Investing.com - The US dollar rose Tuesday, rebounding after the previous session’s losses in the wake of a selloff in technology stocks, on heightened concerns about trade wars and their impact on global growth.
At 04:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% higher to 107.725, but still marginally lower on the week.
Growth concerns help the dollar
The dollar gained Tuesday, helped by the resurgence of global growth concerns after US President Donald Trump reiterated his push for higher universal tariffs.
This has heightened concerns about trade wars and their impact on global growth, bolstering the dollar’s safe-haven appeal.
The Financial Times reported that new Treasury Secretary Scott Bessent is pushing for a gradual rise in universal tariffs starting from 2.5%, and potentially up to 20%. Trump later said that he wants “much bigger” tariffs than 2.5% and is considering targeted duties on products like steel, copper and semiconductors.
“These comments contradict the markets’ tentatively sanguine assumption that tariffs would be more of a case-by-case measure (like for Colombia) and not universal,” said analysts at ING, in a note.
“Probably, the fact that these plans are being actively laid out by the Treasury and not simply hinted at by Trump means the additional risk premium gap now embedded into dollar crosses may prove harder to close.”
The dollar had slumped Monday amid a selloff in technology stocks as markets weighed the implications of a Chinese startup, DeepSeek, launching a free open-source artificial intelligence model.
The Federal Reserve concludes its latest two-day policy-setting meeting on Wednesday, and is widely expected to keep interest rates unchanged.
ECB meeting looms large
In Europe, EUR/USD slumped 0.6% to 1.0430, with the pair weighed by dollar strength even after French consumer confidence improved in January, following on from the gains in German business morale.
“The tariff threat may be perceived more seriously given the Treasury’s active planning, and that materially shrinks the upside potential for the euro,” said ING.
The European Central Bank meets on Thursday, and is widely expected to cut interest rates once more, having cut a total of four times in 2024.
“Our view is that the shake-up in equity markets and resurging tariff risk are going to be much more relevant for EUR/USD compared to the widely anticipated 25bp cut and quite likely reiteration of a dovish-leaning guidance,” ING added.
GBP/USD traded 0.5% lower to 1.2437, with sterling showing weakness ahead of the next Bank of England meeting in early February.
Yen on "rollercoaster"
In Asia, USD/JPY traded 0.8% higher to 155.70, with inflation data from Tokyo likely to be in focus this week.
“USD/JPY has been on a rollercoaster ride since the start of the week. The initial reaction to the tech-led equity selloff was a perfect recipe for a JPY rally: risk-off, declining USD rates,” said ING.
“The exploration below 154.0 did not last long though, and the broader dollar rebound – which accelerated as universal tariffs retook centre stage – has taken USD/JPY back to the 155.50-156.0 area. This is again a testament to the perceived correlation between US protectionism and a more hawkish Fed, which has large repercussions on the rate-sensitive JPY.”
USD/CNH traded 0.5% higher to 7.2837, reflecting ongoing pressure from US tariff threats. Onshore markets were shut for the Lunar New Year holiday.