The US dollar fell in European trade on Tuesday against a basket of major rivals, extending losses for the second day under pressure from US 10-year treasury yields. 

The US implemented its new tariffs against Canada, Mexico, and China, with Beijing responding quickly with tariffs on US commodities as the trade wars erupt.

Now investors await a series of important US labor data this week, expected to provide crucial pricing for the odds of a Fed rate cut this quarter.

The Index

The dollar index fell 0.4% to 106.16, with a session-high at 106.65.

On Monday, the index lost 0.95%, the first loss in four days away from two-week highs at 107.66 on profit-taking.

US Yields

US 10-year treasury yields fell 1.1% today on track for the third loss in a row, plumbing a five-month trough at 4.115% and hurting the dollar’s standing.

The decline comess asd investors prepared for Trump’s 25% tariffs, which officially went into action today against Canada and Mexico.

Otherwise, according to the Fedwatch tool, the odds of a 0.25% Fed interest rate cut in March stood at 9%.

A smaller gap between US and Japanese long-term treasury yields would boost the standing of Japanese bonds and underpin the yen.

Trump’s Tariffs 

Trump imposed 25% tariffs on Canada and Mexico, and a 10% additional tariff on Chinese products, damaging global sentiment. 

China quickly responded by imposing 15% tariffs on some US imports, and will limit exports to 15 US companies.

Gold prices rose in European trade on Tuesday, trading above $2900 an ounce as the dollar lost ground against major rivals.

Now traders await a batch of important US labor data later today, which would provide important clues on the odds of a Fed rate cut this quarter.

Prices

Gold prices rose 1% today to $2920 an ounce, with a session-low at $2882.

On Monday, gold rose 1.25%, marking the first profit in three days away from three-week lows at $2832.

US Dollar

The dollar index fell 0.35% today against a basket of major rivals, underpinning greenback-denominated gold futures.

Dollar’s decline comes as US 10-year treasury yields dropped to five-month lows amid mounting global trade tensions. 

Investors fear deep wounds to the US and global economies due to Donald Trump’s tariffs on global economic partners.

US Rates

According to the Fedwatch tool, the odds of a Mach Fed rate cut stood at just 9%.

Now investors await a batch of important US labor data today, including private sector employment data, unemployment claims, and the payrolls report on Friday.

SPDR

Gold holdings at the SPDR Gold Trust fell 3.45 tons yesterday, the fourth such decline in a row, to a total of 900.93 tons, the lowest since February 20.

The euro fell in European trade on Tuesday against a basket of major rivals, following a surge against the dollar yesterday. The current decline comes amid mounting global trade tensions as Trump imposes tariffs on Canada and Mexico.

Trump’s tariff threats turned into reality, with now the EU being set as the next target, with likely new tariffs announced in April.

The Price

The EUR/USD pair fell 0.15% today to $1.0471, with a session-high at $1.0496.

The pair closed up 1.1% on Monday, the best profit since January 20, as EU leaders agreed to present an emergency plan to the US to achieve peace in Ukraine. 

The gains were also boosted by higher-than-expected eurozone inflation data for February, renewing inflationary pressures on ECB policymakers.

Trump’s Tariffs 

Trump imposed 25% tariffs on Canada and Mexico, and a 10% additional tariff on Chinese products, damaging global sentiment. 

China quickly responded by imposing 15% tariffs on some US imports, and will limit exports to 15 US companies.

Trump recently asserted that tariffs on the US will be implemented soon, accusing the EU of taking advantage of the US, with a trade deficit amounting to $300 billion.

Trump said the EU doesn’t take American cars or agricultural products, but conversely, the US takes millions of European cars and massive amounts of their food products.

The ECB

The European Central Bank will convene this week to discuss monetary policies and latest economic developments in the eurozone.

The ECB is expected to cut interest rates by 25 basis points to 2.65%, the lowest since December 2022.

Interest Rate Gap

The current eurozone-US interest rate gap stands at 160 basis points in favor of the US, and will likely expand to 185 basis points later this week, undermining the euro.

The Japanese yen rose in Asian trade on Tuesday on track for the second straight daily profit against the dollar, about to hit four-month highs on mounting odds for a Japanese rate hike in March.

The yen is also boosted by a drop in US 10-year treasury yields to five-month lows as President Donald Trump implemented 25% tariffs on Canada and Mexico.

The Price

The USD/JPY pair fell 0.6% today to 148.52 yen per dollar, with a session-high at 149.62.

The yen rose 0.75% on Monday, resuming gains after three days of losses, and approaching a four-month high at 148.56.

Japanese Rates

BOJ Deputy Governor Shinichi Uchida said on Friday the bank will continue to reduce its purchases of government bonds despite the recent rise in yields, asserting its massive holdings of bonds still act as a massive stimulus to the economy.

Uchida reiterated the BOJ’s readiness to hike interest rates if economic developments and prices went as expected

The odds of a BOJ interest rate hike in March now stand at 85%.

US Yields

US 10-year treasury yields fell 1.1% today on track for the third loss in a row, plumbing a five-month trough at 4.115% and hurting the dollar’s standing.

The decline comess asd investors prepared for Trump’s 25% tariffs, which officially went into action today against Canada and Mexico.

Otherwise, according to the Fedwatch tool, the odds of a 0.25% Fed interest rate cut in March stood at 9%.

A smaller gap between US and Japanese long-term treasury yields would boost the standing of Japanese bonds and underpin the yen.