Investing.com - The U.S. dollar slipped lower Monday, approaching a five-month low on concerns the uncertainty surrounding the Trump administration’s tariffs policy will prompt an economic slowdown.
At 08:05 ET (12:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 103.162, approaching last week’s five-month trough.
Dollar hit by economic shutdown
The greenback has fallen almost 5% so far this year on concerns over the effect of Trump’s sweeping tariffs, with data on Friday showing consumer sentiment plunged to a nearly 2-1/2-year low in March.
U.S. Treasury Secretary Scott Bessent, in an interview with NBC on Sunday, said there were "no guarantees" that the U.S. economy will avoid recession this year.
This came just a week after U.S. President Donald Trump declined to rule one out.
U.S. retail sales figures due later on Monday will offer the next insight into the health of the world’s largest economy, ahead of Wednesday’s interest rate decision by the Federal Reserve.
“No major changes are expected in terms of policy rates, forecasts or communication,” said analysts at NG, in a note. “We do see the event as a slight upside risk to the dollar, however, as the Fed sticks to just two 25bp cuts this year (61bp currently priced) and Chair Jerome Powell has a good track record of saying the right things to calm the stock market.”
Euro gains on German debt plan
In Europe, EUR/USD traded 0.2% higher at 1.0907, close to last week’s peak, its highest since October 11, ahead of the likely vote by the German parliament to agree a substantial fund for infrastructure and sweeping changes to borrowing rules.
German parties on Friday agreed on a fiscal deal that could boost defence spending and revive growth in Europe’s largest economy.
This could see “EUR/USD nudge back up to the 1.0930/50 area,” said ING.
However, “EUR/USD could well come under pressure in April as Washington pushes through its reciprocal trade tariffs. 1.05-1.10 is our call for the EUR/USD trading range in the second quarter.”
GBP/USD rose 0.3% to 1.2970, boosted by dollar weakness ahead of Thursday’s policy meeting from the Bank of England.
The U.K. central bank is widely expected to keep interest rates unchanged after inflation edged higher last month.
“Currently, the market prices 53bp of BoE rate cuts this year,” said ING. “Our house view is for 75bp. And a potential catalyst to that dovish re-pricing is next week’s Spring Statement from UK Chancellor Rachel Reeves. UK press reports are fixated on which government departments are at risk for spending cuts and the narrative of tighter fiscal policy looks a bearish one for sterling next week.”
Yen stable ahead of BOJ meeting
In Asia, USD/JPY dropped 0.1% to 148.47, with the Bank of Japan expected to maintain the current interest rate at 0.5% this week, despite rising inflationary pressures, as officials are concerned about rising trade tensions stemming from U.S. President Donald Trump’s tariffs.
USD/CNY traded 0.1% lower to 7.2312, with the yuan helped by China unveiling on Sunday a comprehensive "special action plan" to bolster domestic consumption, aiming to invigorate economic growth amid recent challenges.