The dollar faced challenges on Wednesday, struggling to recover from a five-month low against major currencies. This instability stemmed from growing concerns about the U.S. economy, intensified by the unpredictable trade policies of President Donald Trump. Meanwhile, the euro remained high, nearing a five-month peak, buoyed by increasing optimism surrounding a resolution to the conflict in Ukraine. The Canadian dollar maintained its position after experiencing significant fluctuations on Tuesday.
The volatility was ignited when Trump announced plans to double tariffs on steel and aluminium, only to retract the decision a few hours later. The Bank of Canada was scheduled to meet later on Wednesday, with market expectations leaning towards a quarter-point interest rate cut. Kyle Rodda, a senior financial markets analyst at Capital.com, highlighted the persistent trade uncertainty that contributes to ongoing market volatility. He remarked that the outlook for U.S. growth continues to weaken, drawing attention to the consumer price index (CPI) report expected later in the day, which he cautioned might trigger considerable market fluctuations.
The U.S. dollar index made a slight recovery, increasing by 0.08% to 103.53, following a notable drop on Tuesday. Investor anxiety has heightened since Trump avoided dismissing the possibility of a recession resulting from his trade policies during a recent interview. The upcoming CPI report could lead to adverse outcomes for the market, according to Julien Lafargue, chief market strategist at Barclays Private Bank. He mentioned that both higher and lower-than-expected CPI readings could exacerbate fears of stagflation or recession, respectively.
In Europe, the euro eased slightly but remained close to its previous session’s high. The currency had benefited from Germany’s fiscal promises, despite internal political challenges. The British pound also experienced a minor decline, while the dollar rebounded against the yen and continued to show strength against the Canadian dollar and the yuan. In the cryptocurrency space, bitcoin fell 1.4% after recovering from a four-month low.
Geoffrey Kendrick, global head of digital assets research at Standard Chartered Bank, noted that the market’s instability was influenced by Trump’s tariff decisions and recession discussions. He warned that a decline below a critical support level in bitcoin could lead to significant losses, although he maintained a long-term bullish outlook for the cryptocurrency.