The dollar fell to a three-month low on Tuesday as concerns about slowing growth and the impact from tariffs on the U.S. economy outweighed any potential boost from new levies on Canada, China and Mexico.
President Donald Trump's 25% tariffs on goods from Canada and Mexico took effect Tuesday, along with a doubling of duties on Chinese goods to 20%.
In response, China said it will impose additional tariffs of 10-15% on certain U.S. imports from March 10. Canada has said that retaliatory tariffs on the United States would take effect on Tuesday, and Mexico is expected to follow suit.
Increasingly convinced Donald Trump is acting, rather than just talking, markets are moving to factor in a slowdown in U.S. and global growth.
The textbook reaction might have been to buy the dollar and sell foreign currencies that would be expected to weaken to stimulate exports. But that did not happen across the board.
"This tariff reaction, I think, is certainly surprising," said Brian Daingerfield, foreign exchange strategist at Natwest Markets in New York.
"We've seen the dollar weakened but I think this reflects markets' assumptions about how the tariffs will have a negative impact, not just on external growth, but how it could potentially have a negative impact on U.S. growth."
That should give more insight into the economic slowing that has unsettled investors and will be a topic for the Federal Reserve as it decides whether to resume easing or stay on pause.
The U.S. dollar index , which tracks the currency against six peers, was 0.31% lower than late Monday's levels in mid-morning U.S. trade at 106.21, hitting its lowest since December 6.
"While the U.S. is now broadening its tariff regime to Canada and Mexico, weak domestic U.S. activity... is preventing the dollar from strengthening on the tariff news," said Chris Turner, global head of markets at ING.
Investors flocked to traditional safe-haven currencies the Japanese yen and Swiss franc as growth and tariff fears knocked global stocks on Tuesday.
The Canadian dollar strengthened overnight. Dollar/Canada was last little changed at C$1.4479, having hit a one-month low of 1.4541 late on Monday after Trump confirmed the tariffs.
The Mexican peso was last down roughly 0.1% with the dollar trading at 20.906 pesos, after earlier touching its lowest since February 3.
Analysts said many in the market were hoping tariffs might quickly be lifted if deals can be struck, much as the initial threat of levies against Canada and Mexico was halted in February.
"The price action suggests that market participants remain hopeful that the tariff hikes won't remain in place for long helping to limit trade and economic disruption," said Lee Hardman, senior currency analyst at Japanese bank MUFG.
The euro was up 0.36% at $1.0523, and hit its highest since December 10 at $1.0559, reflecting the lack of tariffs so far on the European Union and a narrowing of the gap between U.S. and euro zone bond yields, which has made the dollar less attractive.
Euro zone government bond yields have risen relative to those in the United States as Trump's pullback from supporting Ukraine has stirred expectations of higher borrowing and spending on defence. Yields move inversely to prices.
Investors also await the European Central Bank policy meeting on Thursday, with traders pricing in another 25 basis-point cut.
U.S. 10-year Treasury yields fell to their lowest level since October 21 on Tuesday at 4.106% as traders digested the weak data and tariff headlines.
Sterling rose to an 11-week high of $1.2753 as the dollar slipped and was last up 0.08% at $1.2709.
The dollar weakened 0.66% to 148.51 yen. It bottomed at 148.07, its lowest since October 8.
China's yuan firmed to 7.265 per dollar, aided by the central bank continuing a strengthening bias in its daily official guidance.
In cryptocurrencies, bitcoin was down 1.71% to $83,829.10. It rose to almost $95,000 on Sunday following Trump's weekend proposal for a national strategic reserve of cryptocurrencies. Ethereum was off 0.55% at $2,098.51.
