Dollar Drops Amidst Softer Tariff Tone, Rate Cut Calls

(RTTNews) - The U.S. Dollar tumbled against major currencies during the week ended January 24 amidst a perceived softening in the U.S. administration's tone on trade tariffs and President Trump's call to global central banks to lower interest rates.

Weak economic data updates from the U.S. also aided the Dollar's decline. The Dollar inter alia declined against the euro, the British pound, the Australian Dollar, and the Japanese Yen. It also decreased against the Canadian dollar, the Swedish Krona and the Swiss franc, dragging down the six-currency Dollar Index.

The Dollar Index, a measure of the Dollar's strength against a basket of 6 currencies, which had closed at 109.35 on January 17, plunged to 107.44 by January 24, recording a decline of 1.75 percent. The Index traded between a high of 109.47 touched on Monday and the low of 107.22 on Friday. The index recorded the worst decline since November 2023.

The dollar which had gained considerably amidst hints of potentially high tariffs that the U.S. warned it would levy, retreated on Monday in the absence of day-one tariff hike announcements by President Trump.

Data released by the U.S. Department of Labor on Thursday had showed initial jobless claims in the U.S. rising to 223 thousand in the period ending January 18 surpassing market expectations of 220 thousand. The weekly increase of 6 thousand also marked the sharpest rise in six weeks.

Data released by S&P Global on Friday showed Manufacturing PMI rise to 50.1 in January from 49.4 in the previous month. Markets had expected a reading of 49.7. The Services PMI which was expected to edge down to 56.5 from 56.8 in the previous month dropped to 52.8. The combined effect saw the Composite PMI fall to 52.4 in January from 55.4 in the previous month.

The weak PMI update as well as the labor market data cast aspersions on the resilience of the U.S. economy and triggered speculations about the Federal Reserve's ability to maintain rates at the current high level, weakening the dollar. President Trump's address to the World Economic Forum in Davos that urged global central banks to reduce interest rates also dragged down the Dollar.

The dollar's weakness and fading tariff hike fears lifted the EUR/USD pair to a high of 1.0523 on Friday from the week's low of 1.0266 recorded on Monday. Despite expectations of another rate cut by the European Central Bank, the pair added 2.16 percent during the week, closing at 1.0493 on Friday, versus 1.0271 a week earlier.

The GBP/USD pair jumped 2.6 percent during the week ended January 24, lifting the sterling to $1.2479, from $1.2163 a week earlier. Amidst the Dollar's weakness, the pair climbed from the low of 1.2159 touched on Monday to the high of 1.2503 recorded on Friday. An unexpected spike in the unemployment rate, a larger-than-expected decline in consumer confidence as well as stronger-than-expected PMI readings, all swayed the currency's movements over the course of the week.

The Australian Dollar added 1.92 percent against the U.S. Dollar during the week ended January 24. The pair which touched the week's low of 0.6189 on Monday climbed to the week's high of 0.6332 on Friday. The pair eventually closed at 0.6309 versus 0.6190 a week earlier. Strong economic data from China as well as expectations of President Trump softening his stance on China supported sentiment for the Australian Dollar.

The USD/JPY pair slipped 0.2 percent during the past week amidst a widely expected rate hike by the Bank of Japan. The pair dropped to 155.98, from 156.30 a week earlier. The weekly trading range was a bit wider, between a low of 154.77 recorded on Tuesday and the high of 156.76 recorded on Thursday. The Bank of Japan had on Thursday raised its key short-term interest rate by 25 basis points to 0.5 percent, the highest level in 17 years.

Despite renewed tariff jitters at the onset of the new week, the Dollar has weakened on Monday. The six-currency Dollar Index traded between 107.14 and 107.81 on Monday versus 107.44 at close on Friday. It is currently at 107.19. Anxiety ahead of the Fed's interest rate decision due on Wednesday and the looming economic data updates also weighed on sentiment.

On the U.S. economic data horizon are the Durable Goods Orders for December due on Tuesday, advance estimates of fourth quarter GDP due on Thursday and PCE-based inflation readings for December scheduled for Friday.

The EUR/USD pair has increased to 1.0511 ahead of the European Central Bank's interest rate review scheduled for Thursday. The GBP/USD pair has also increased to 1.2502. The AUD/USD pair has slipped to 0.6300 amidst weak factory data from China. The USD/JPY pair has plunged to 153.85 versus 155.98 at close on Friday.