The U.S. dollar weakened against most major currencies on Wednesday as global markets closely monitored President Donald Trump’s high-stakes tariff negotiations with key trading partners, particularly China.
Investors are bracing for a pivotal week, with a flurry of economic data releases and a critical deadline for trade offers set to shape market sentiment.
The Trump administration recently intensified pressure on global trade partners, doubling duties on imported steel and aluminum effective today, while demanding countries submit their “best offers” on trade by the close of Wednesday.
The escalation has heightened tensions, particularly with China, where both sides have accused each other of breaching a tariff rollback agreement reached last month.
A highly anticipated call between President Trump and Chinese President Xi Jinping, expected this week, has become a focal point for markets seeking signs of de-escalation. Trump’s recent social media post describing Xi as “tough” and “hard to make a deal with” has further rattled investors, amplifying uncertainty.
“Markets had been relatively calm about U.S.-China relations until Trump’s rhetoric escalated late last week,” said Fiona Cincotta, senior markets analyst at City Index. “The focus is now squarely on this call, with investors looking for any indication that the two leaders are aligning on trade terms.”
Dollar Volatility Amid Economic Signals
The dollar’s movements this week have been driven by a mix of trade developments and domestic economic indicators. On Monday, the dollar fell 0.8% against major currencies following a reported contraction in U.S. manufacturing activity, signaling potential cracks in the economy.
However, it rebounded nearly the same amount on Tuesday after an unexpected surge in U.S. job openings, underscoring the resilience of the labor market.
As of 07:35 GMT Wednesday, the dollar remained steady against the Japanese yen at 143.95 yen and slipped 0.16% against the Swiss franc to 0.8228 francs.
The euro gained 0.21% to $1.1395, bolstered by anticipation of the European Central Bank’s interest rate decision on Thursday. Sterling rose modestly by 0.14% to $1.3539, supported by the UK’s exemption from the new U.S. metal tariffs due to an existing trade agreement.
The dollar index, which tracks the currency against a basket of six peers, held steady at 99.12, close to its late April low.
Global Economic Health in Focus
Despite the trade tensions, market sentiment has been propped up by economic data that analysts say has yet to fully reflect the fallout from ongoing uncertainties.
Investors are closely watching upcoming releases, including May business activity data from the UK and eurozone, as well as the U.S. ISM services sector report.
The ADP employment report, due later today, is expected to provide a snapshot of U.S. private sector health ahead of Friday’s critical monthly payrolls data, which could further influence the dollar’s trajectory.
Elsewhere, the Australian dollar edged up 0.12% to $0.647 after GDP figures revealed sluggish first-quarter growth, reinforcing expectations for additional stimulus from the Reserve Bank of Australia.
The Canadian dollar remained flat at C$1.3714 against the U.S. dollar, with the Bank of Canada widely expected to maintain steady interest rates. Both Canada and Mexico, heavily reliant on industrial metal exports, face challenges from the new U.S. tariffs, though Mexico’s peso held steady.
In Asia, China’s yuan remained stable at 7.1886 per dollar in offshore trading, reflecting cautious optimism as markets await the Trump-Xi call. Meanwhile, South Korea’s won surged 0.9% to 1,365.4 per dollar, buoyed by the presidential election victory of liberal candidate Lee Jae-myung, which has sparked hopes of economic reforms.
WHAT YOU SHOULD KNOW
The U.S. dollar weakened against major currencies as markets fixated on President Trump’s escalating tariff negotiations, particularly with China, amid a critical trade offer deadline and doubled duties on steel and aluminum.
The Trump-Xi Jinping call is expected this week, which could determine whether trade tensions ease or intensify, significantly impacting global markets and the dollar’s trajectory.
Economic data, including U.S. job openings and upcoming payrolls, also influences sentiment, but trade frictions remain the dominant force driving uncertainty.
As trade talks and economic data converge, global markets remain on edge. The outcome of U.S.-China negotiations, combined with key economic indicators, will likely dictate the dollar’s near-term path and broader market stability.
