Dollar Gains Ground On Revived Tariff Uncertainty

The dollar strengthened on Monday as traders assessed the impact of U.S. President Donald Trump's tariff threats and awaited the Federal Reserve's decision on interest rates later this week.

The dollar index, which measures the currency against six others, stood at 107.6, near a one-month low from the previous week, when tariff fears had temporarily subsided. However, tensions reignited as the U.S. and Colombia narrowly avoided a trade war.

Colombia initially resisted accepting deportees via military flights, prompting Trump to threaten tariffs. In response, Colombia threatened retaliation before ultimately agreeing to accept the flights.

The tariff uncertainty impacted other currencies, with the Mexican peso dropping 0.7 to 20.409 per dollar and the Canadian dollar weakening slightly to 1.4385 per dollar. Trump hinted at potential tariffs on Canada, Mexico, and China starting February 1, fueling inflation worries and bolstering U.S. Treasury yields. Meanwhile, the euro fell 0.2 to 1.0467 ahead of an expected rate cut by the European Central Bank, and sterling traded at 1.2450.

Christopher Wong, a strategist at OCBC, noted that while immediate tariffs are absent, ongoing concerns provide some support for the dollar ahead of the February deadline. The U.S. 10-year Treasury yield dipped three basis points to 4.593.