Dollar falls to four-month low on economic growth concerns

Investing.com - The US dollar retreated further Friday, trading at a four-month low amid worries trade policy uncertainty will hit economic activity in the world’s largest economy.

At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% lower to 103.605, near its weakest level since late October.

Dollar weakens on damaged confidence 

The U.S. dollar has been on the slide over the last month amid uncertainty over U.S. President Donald Trump trade policies, and the potential impact on the U.S, economy.

President Trump on Thursday exempted imports from Canada and Mexico from his 25% tariffs for a month, two days after imposing them, the latest unexpected twist in his trade policies that have unsettled investors.

“The new U.S. Administration’s highly uncertain tariff policy looks to be damaging confidence and impacting activity,” said analysts at ING, in a note.

Atlanta Federal Reserve President Raphael Bostic said on Thursday that Trump’s policies were clouding the U.S. economy’s outlook, and also warned that his tariffs could underpin inflation. 

Attention now turns to the release of nonfarm payrolls data for February, due later in the session, as this widely watched indicator is likely to provide more cues on the economy. 

“The dollar is fragile and would be hit by a soft number,” ING added. 

Euro sees hefty weekly jump

In Europe, EUR/USD traded 0.7% higher to 1.0859, with the euro climbing to its highest level since November, boosted by the German government to loosen its fiscal rules, a move which is likely to boost growth.

The euro has gained about 4% so far this week, its biggest weekly jump since March 2020.

The European Central Bank cut interest rates for the sixth time in nine months on Thursday, but revised higher its near-term inflation forecast, potentially impacting the number for future cuts the policymakers will agree to going forward.

“In the short term, EUR/USD looks a little overbought and may struggle to get above the 1.0850/75 area. But there now should be good support in the 1.0670/0700 area and investors will now be looking to buy EUR/USD on dips given this week’s developments,” ING added.

GBP/USD rose 0.5% to 1.2941, climbing to levels last seen in November as sterling benefits from the dollar weakness.

Yen hits five-month high 

In Asia, USD/JPY dropped 0.5% to 147.38, with the Japanese yen hitting its strongest level in five months on Friday as increased safe haven demand and speculation over interest rate hikes by the Bank of Japan boosted the currency. 

USD/CNY traded 0.3% lower to 7.2280, with the pair set to lose 0.5% this week. 

China’s exports grew at a much slower-than-expected pace in the January-February period, while imports unexpectedly tumbled. But China’s trade balance grew more than expected.

Still, the weak exports reflected some headwinds from Trump’s trade tariffs, which took effect from early-February. Trump increased his China tariffs to 20% this week.

Beijing had retaliated with a slew of measures, which also likely factored into the weaker import figure. But China’s trade surplus remained strong.