Dollar steady but vulnerable as tariff worries take hold

Highlights:

• Dollar lifts slightly after latest Trump tariff back-track
• Euro set for strongest monthly performance since November 2022
• Yen steady ahead of BOJ policy decision
• Investors await US advance GDP data

The US dollar was steady on Wednesday but poised for its weakest monthly performance since November 2022 as erratic US trade policies under President Donald Trump left the greenback vulnerable while boosting the euro, yen and Swiss franc.

The White House has retreated several times on the sweeping tariffs Trump unveiled in early April that led to a global stock market meltdown and prompted investors to flee the normally safe-haven US dollar and Treasury debt.

Trump signed a pair of orders on Tuesday to soften the blow of his auto tariffs with a mix of credits and relief from other levies on materials.

Trump's trade team also touted its first deal with a foreign trading partner, while US Treasury Secretary Scott Bessent said the administration is making progress on tariff negotiations, noting that deals are forthcoming for India and South Korea.

The developments helped ease some tensions as investors and companies worry about the economic fallout of the tariffs, with indications the duties will weigh on growth and could drive up inflation and unemployment.

"We estimate 'peak tariff' has passed," said Kristina Clifton, an economist at the Commonwealth Bank of Australia. "However, damage has been done to confidence, the US economy and the global trading system."

The euro was steady at $1.1387 after dropping 0.33% in the previous session. Still, the common currency has benefited from investors fleeing US assets and is up 5.26% in April, set for best monthly performance since November 2022.

The Swiss franc last bought 0.8235 per dollar and was on course for a rise of more than 7% for the month, its strongest performance in a decade.

The yen was steady at 142.32 per dollar ahead of the Bank of Japan's policy decision on Thursday where the central bank is expected to keep interest rates unchanged. The yen has risen over 5% against the dollar in April, its strongest monthly performance since last July.

Investors though remain worried about the tariff impact after data on Tuesday showed a gradually declining US economy. Job openings dropped sharply in March, but a drop in layoffs suggested the labour market remained on solid footing.

The Conference Board's US consumer confidence index, on the other hand, sank to a nearly five-year low in April, while the US trade deficit in goods widened to a record high in March as tariff worries take hold.

Companies across the world are already showing signs of strain as delivery giant UPS unveiled 20,000 job cuts while General Motors pulled its outlook.

David Kohl, chief economist at Julius Baer, said the prominent role of sharply higher tariffs on US imports in raising the recession risk is also driving up US inflation, and inflation uncertainty.

"We expect the Fed to delay its response to weaker economic activity, in order to avoid a further rise in inflation... only when weaker activity starts to feed through to the labour market, will the Fed begin to cut rates, but do so aggressively."

"We now expect two rate cuts by 50 basis points at both the July and September Federal Open Market Committee meetings," Kohl said.

The spotlight will now be on the advance GDP estimate for the January-March quarter due on Wednesday, which will coincide with Trump's 100 days in office.

"Clearly, importers have been trying to get as many products into the country as they can before tariffs hit, with the result set to be a huge drag on GDP growth in Q1 2025," ING economists said in a note.

In other currencies, the Australian dollar was little changed at $0.63835, set for an over 2% rise in the month. The New Zealand dollar last bought $0.59295 and was up 4.4% in the month.

Sterling last fetched $1.3403, on course for 3.8% rise in April, its strongest monthly performance since November 2023.

The dollar index , which measures the US currency against six other units, was last at 99.219, not far from the three year low it touched last week. The index is down 4.76% this month, its weakest performance since November 2022.