[NEW YORK] The US dollar rebounded against major currencies such as the euro and yen on Friday (Apr 4) after Federal Reserve Chairman Jerome Powell acknowledged the repercussions of larger-than-expected US tariffs and signalled a cautious tone on future easing.
Powell said that tariffs increased the risk of higher inflation and slower growth, highlighting the difficult path ahead for policymakers at the US central bank.
The Australian dollar, meanwhile, seen as a liquid proxy for the yuan, hit five-year lows against the greenback after China announced additional tariffs on US goods on Friday.
“This is a bit of a more hawkish reaction that he’s focusing on the inflationary impact of tariffs. The US economy has been dealing with higher inflation, and because the US is the one doing the tariffs and it will apply to all imports, it’s likely to have more impact on the US,” said Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management. “The inflationary concerns are real, and this makes sense as we think about the fact that inflation, for five years now, has been running above target.”
Powell’s comments followed data earlier in the day showing that non-farm payrolls rose by 228,000 jobs last month after a downwardly revised 117,000 rise in February, well above the 135,000 forecast. The unemployment rate ticked up to 4.2 per cent from 4.1 per cent. Markets drew little comfort from the numbers because “they don’t factor in any of this week’s events or the fallout that will inevitably come with them over the next few weeks”, said Helen Given, director of trading, Monex USA.
China announced additional tariffs of 34 per cent on all US goods, starting on Apr 10. The move added to recession concerns and intensified a global stock market rout.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Markets are predicting four quarter-point interest rate cuts from the Fed in the remainder of this year, and reduced the odds of further Bank of Japan tightening to 11 bps. They also fully priced in three 25 basis point European Central Bank rate cuts by December.
The Swiss Franc rose 0.6 per cent versus the euro and hit a six-month high versus the US dollar. Meanwhile, sterling declined 1.61 per cent to US$1.2889, after pushing as high as US$1.3207 a day earlier, the first time since Oct 3. It was the pound’s largest weekly decline since Feb 24.
As Chinese markets observed a national holiday on Friday, the US dollar edged up 0.2 per cent at 7.2959 yuan in offshore trade. The Australian dollar, which fell to its lowest since early April 2020, was last down 4.42 per cent at US$0.60490. Similarly, the New Zealand dollar was down 3.42 per cent to US$0.55960. The Aussie dollar posted its largest weekly loss since March 2020. The Canadian dollar dropped 0.81 per cent to 1.4208.
Meanwhile, the greenback pared losses against the yen, trading up 0.58 per cent to 146.92 yen. It had slumped 2.2 per cent in the prior session, at one point dipping as low as 145.19 yen for the first time since Oct 2. On the week, the US dollar is down the most since early February. REUTERS
