Dollar Gains as Traders Await Interest Rate Decisions Amid Tariff Concerns

The dollar strengthened as traders assessed the impact of U.S. President Donald Trump's tariff plans. Despite a weak performance last week, renewed tariff concerns led to market movements. Focus is now on central banks, particularly the Federal Reserve, as it contemplates interest rate decisions, with inflationary pressures and business activity figures in the backdrop.

The dollar firmed on Monday, driven by traders speculating on the implications of U.S. President Donald Trump's tariff initiatives. The previous week saw the dollar's weakest performance since November 2023, as tariff concerns temporarily abated. However, fears reignited following Trump's announcement of ambitious measures against Colombia, which refused entry to U.S. military aircraft carrying deported migrants.

The market reaction was swift, with the Mexican peso dropping 0.8% to 20.426 per dollar early on. The Canadian dollar, too, exhibited weakness, trading at $1.43715. The euro dipped 0.14% to reach $1.0474, ahead of the European Central Bank's meeting, where a further reduction in borrowing costs is anticipated. Meanwhile, sterling was trading at $1.24615.

All eyes are now on central banks, especially the Federal Reserve, which is expected to hold rates constant at its ongoing session. Nonetheless, investors remain vigilant for any cues indicating a potential rate cut in March, particularly if inflation aligns more closely with the Fed's 2% annual target. Friday's data also unveiled a slowdown in U.S. business activity to a nine-month low in January, although housing sales showed improvement. This dynamic backdrop sets the stage for the Fed's upcoming decisions.

(With inputs from agencies.)