Forexlive Americas FX news wrap: US dollar falls as the market shrugs off tariffs

• Trump announces reciprocal tariffs: Could begin to impose some tariffs “within weeks”
• US January PPI +3.5% vs +3.2% y/y expected
• US initial jobless claims 213K versus 215K estimate
• Trump expressed support in the call for a European peacekeeping force in Zelensky call
• US treasury sells $25 billion of 30 year bonds at a high yield of 4.748%
• Ukraine’s Zelenskiy warns: Don’t trust Putins claims of readiness to end war
• NY Fed: Q4 total household debt rose 0.5% to $18.04 trillion
• Senior Trump official: Hope to have bilateral trade deal with India this year
• Italy economy minister: Will adopt measures in next few weeks to address energy costs

Markets:

• CHF leads, USD lags
• WTI crude oil up 5-cents to $71.42
• US 10-year yields down 10.5 bps to 4.52%
• Gold up $23 to $2926
• S&P 500 up 0.95%

If you look at the newsflow — tariff announcement and hot PPI — you might have expected to see some US dollar strength today but it was just the opposite. The details of the PPI report weren’t nearly as hot as the headlines and the components that go into the PCE report argue for a decline in core PCE — the Fed’s preferred inflation measure. The market took at as a dovish signal and Treasury yields gave back all of yesterday’s CPI-inspired gains.

On the tariff front, they’re certainly not having the effects they used to. The ‘reciprocal’ announcement was telegraphed for a week so that’s some of it but it also has at least a six-week delay and the market is taking the view that these will either be tolerable for partners, negotiated away or never implemented.

There was an initial drop of around 30 pips in the euro on the announcement of a focus on the EU VAT but that only lasted minutes as the dip was bough and the euro continued to rise form there, finish 90 pips above the lows.

It was a similar story elsewhere as the dollar softened before the tariff announcement, then briefly surged, then gave it all back and more. USD/JPY mirrored the move in bonds as it fell 166 pips to erase yesterday’s gain.

Another notable signal on tariffs may be USD/CAD, which fell 117 pips today and is back to where it was in mid-December when Trump first announced 25% tariffs on Canada and Mexico.

Overall, the moves are were generally uniform as the dollar/risk trade continues to bounce around. On Friday we get US retail sales data and then it’s a long weekend for markets.

This article was written by Adam Button at www.forexlive.com.