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The US dollar experienced its largest weekly decline in over a year on Friday, following remarks by President Donald Trump indicating a potentially softer stance on tariffs with China and advocating for lower interest rates.
The dollar fell 0.3% against a basket of currencies to its lowest level since mid-December, with a weekly loss of 1.8%, the worst since November 2023.
Trump’s comments also included calls for looser monetary policy, expressing a desire for interest rates to decrease significantly.
As a result, the euro and sterling both saw gains against the dollar, with the euro rising 0.9% to $1.0505 and sterling up 0.9% to $1.246.
Lee Hardman, senior currency strategist at MUFG, attributed the reversal in US dollar strength to reduced fears of global trade disruption due to Trump’s tariff plans.
Mexico’s peso also strengthened, rising 1% against the dollar, marking its best week in four months.
Despite the temporary delay in tariffs, investors remain cautious about the potential impact, as uncertainty surrounding Trump’s policies persists.
The Fed’s resistance to external pressure, particularly from the new administration, is a key focus for fund managers this year.
Olivier De Larouzière, chief investment officer for global fixed income at BNP Paribas Asset Management, emphasized the importance of monitoring the Fed’s communications in light of potential rate hikes.
Following Trump’s remarks, investors adjusted their expectations for rate cuts, with another quarter-point cut anticipated in the coming months.
While Trump pushes for lower rates, some investors believe the Fed’s ability to further cut rates is limited, and predict a continued rally for the dollar.
Asian currencies, including the Japanese yen and Indian rupee, strengthened against the dollar in response to Trump’s comments, with the offshore Chinese yuan reaching its highest level since November.