Dollar drops as markets weigh Trump tariff vow, yen hits 5-week high

By Stefano Rebaudo

(Reuters) -The U.S. dollar fell to a one-week low against its major peers on Wednesday as investors grew cautious about President-elect Donald Trump's tariff pledges while rebalancing their portfolios before the end of the month.

Markets will closely watch Personal Consumption Expenditures (PCE) price index due out later on Wednesday, before U.S. markets close for the Thanksgiving holiday on Thursday.

Trump's vows on Monday of big tariffs on Canada, Mexico and China, the United States' three largest trading partners, have left investors jittery.

Markets will remain edgy on expectations for announcements and possible U-turns from Trump, who takes office in late January.

Some analysts argued that inflation risks could prevent Trump from ushering in more disruptive measures.

"We believe that Trump realizes that his win was almost entirely due to 3i (LON:III )'s -- inflation, inequalities and immigration -- with prices being key," said Viktor Shvets, global head of desk strategy at Macquarie Capital.

"Unless there is an improvement, the electorate's revenge could be severe, and there is not much time, as within 12 months, mid-terms will dominate," he added.

Shvets noted that Trump has picked Scott Bessent as Treasury Secretary, who is expected to keep a leash on U.S. deficits and to use tariffs as a negotiating tool.

The dollar index , which measures the greenback against six rivals, was last down 0.45% at 106.42, after hitting 106.33, its lowest since Nov. 20. It rose by around 30% since Nov. 6, the day after the U.S. election.

"The recent sharp dollar appreciation largely decreases the asset values in dollars outside U.S. and hence increases the rebalancing need to sell the dollar at the month-end," said Sheryl Dong, forex strategist at Barclays (LON:BARC ).

The yen outperformed, lifted by growing bets for a December rate hike in Japan, and position adjustments.

The dollar dropped more than 1% versus the yen, with the selloff accelerating after the cross fell below the 200 day moving average at 151.998.

Analysts flagged some relief as the country is not in the firing line of Trump's possible tariffs.

"Japan has a strong hand in dealing with U.S. trade concerns," said Jane Foley, senior forex strategist at RaboBank.

It "is the U.S.'s largest overseas holder of U.S. Treasuries and the largest provider of foreign direct investment into the U.S.," she added.

The dollar was last down 1.09% to 151.58 versus the yen, after hitting 151.20, its lowest since Oct. 23. The greenback dropped almost 2% in two sessions.

"The fact that tariffs against China are now only to be increased by 10% and not by 60%, as was previously threatened, was therefore interpreted positively for the yen," said Carsten Fritsch, strategist at Commerzbank (ETR:CBKG ).

Data showed last week that Japan's exports expanded faster than expected in October, led by a pick-up in chip equipment demand in China.

China's offshore yuan was flat at 7.2582 after hitting 7.2730 the day before, its lowest since end-July.

The Japanese currency has already priced in some geopolitical risk premium, analysts said.

A ceasefire between Israel and Iran-backed group Hezbollah came into effect on Wednesday, under a deal that aims to end hostilities across the Israeli-Lebanese border.

The euro was up 0.37% to $1.0528.

The single currency reacted with relief that Trump didn’t mention Europe trade. However stocks in European car manufacturers fell sharply on Tuesday as they have huge production capacity in Mexico that is sold to the U.S.

Against its Canadian counterpart, the greenback was roughly unchanged at C$1.4054, after touching a 4-1/2-year high of $1.4178 on Tuesday.

The dollar remained off its highest against the Mexican peso since July 2022, and was last down 0.20% on the day.

The New Zealand dollar rose after the Reserve Bank of New Zealand cut benchmark rates by 50 basis points to 4.25% while noting inflation had declined to near the mid-point of its targeted range.



The Australian dollar fetched $0.6480, up 0.10% after domestic consumer price inflation stayed at a three-year low in October.

In cryptocurrencies, bitcoin was up 1.8% at $93,271, way below recent highs.

Source: Investing.com