Investing.com - The US dollar fell Friday, on track for a hefty weekly loss in the wake of hot inflation data and after President Donald Trump delayed imposing reciprocal tariffs on major U.S. trading partners.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% lower to 106.815, dropping to a three-week low and on course for a loss of around 1% this week.
Dollar retreats on tariffs delay
President Trump directed officials on Thursday to formulate plans for reciprocal tariffs on every country that imposes taxes on U.S. imports, but stopped short of immediately announcing tariffs.
This raised expectations that there may yet be room for countries to negotiate, weighing on the U.S. currency as traders have generally seen the imposition of tariffs as being dollar-positive.
“The market knew that the Commerce Department was due to deliver a big report on trade in April and had expected tariffs thereafter,” said analysts at ING, in a note. “But it had also feared that this week's reciprocal tariffs announcement would be a separate workstream and be more immediate. News yesterday effectively laying the groundwork for the April report has therefore been seen as a relief.”
Attention now turns to a gathering of Western powers in Munich later Friday to discuss potential peace in Ukraine, and the terms that would be acceptable to both Kyiv and Moscow, not to mention the U.S. and Europe.
“We think the dollar can stay soft as the focus switches to the security conference in Munich and what it means for any ceasefire in Ukraine,” added ING. “Speculation is building that representatives from the U.S., Russia, Ukraine and perhaps Europe, too, could meet in Saudi Arabia at some stage.”
The main economic data release Friday in the U.S. is the January retail sales figure, which is expected to soft given the recent bad weather.
Inflation gauges have come in hotter than expected this week, but have struggled to support the dollar with the Federal Reserve already indicating a cautious approach to further rate cuts.
Euro climbs to two-week high
In Europe, EUR/USD traded 0.2% higher to 1.0484, with the euro trading around its highest level in two weeks against the dollar, supported by optimism around potential peace talks between Ukraine and Russia.
“Our best guess on EUR/USD is that this current correction might extend to the 1.0535/75 area - but that should be the extent of it. And we have a baseline forecast that EUR/USD will be pressing 1.00 in the second quarter,” said ING.
The latest estimate of eurozone growth is due later in the season, with gross domestic product expected to be flat on the quarter in the final three months of 2024, resulting in annual growth of just 0.9%.
Data released earlier Friday showed that German wholesale prices rose by 0.9% in January compared with the same month last year.
GBP/USD rose 0.3% to 1.2587, with the U.K. currency climbing to its highest level since early January, in the wake of data showing the U.K. economy unexpectedly grew in the final quarter of last year.
Yen shows strength
In Asia, USD/JPY dropped 0.2% to 152.52, with the Japanese currency retaining recent strength, amid persistent bets on more rate hikes by the Bank of Japan.
USD/CNY traded largely unchanged at 7.2898, although the pair did fall from the 7.3 yuan level.