US dollar wallows near 11-week low amid soft economic data, tariff worries

British Pound

Reuters: The pound held just shy of a two-month high against the dollar on Tuesday, and was little changed against the euro in fairly calm trading as markets looked to remarks from the Bank of England's chief economist. The pound was last at $1.2632, flat on the day, having touched $1.269, its highest since mid-December, the day before. That rise and its retreat on Tuesday were largely in line with broad moves in the dollar, which has been weakening on soft U.S. data, but received a small safe haven boost on Tuesday on President Donald Trump's latest tariff threats.

Against the euro, the pound was a whisker softer at 82.94 pence, with trading little moved by the German election and conservative winner Friedrich Merz's bid to form a government. Traders were keeping an eye on Bank of England chief economist Huw Pill, due to make closing remarks at a conference around 1400 GMT, for any policy insights. Pill "sits on the hawkish side of the spectrum and any dovish comments can have a tangible impact on rate expectations", said analysts at ING.

Markets are currently pricing two further 25 basis point rate cuts by the Bank of England. Pill's fellow policy maker, standout dove Swati Dhingra, on Monday challenged market interpretations that the BoE had signalled there would be one 25 basis point rate cut per quarter with its remarks that rate cuts would be "gradual". "I think everybody has a different definition. That's not my definition, clearly," she said. The BoE cut rates by 25 basis points this month, though Dhingra voted for a 50 bp cut.

US Dollar

Reuters: The U.S. dollar sagged near an 11-week low against its major peers on Wednesday, under pressure from sliding short-term Treasury yields after a run of weak economic data. The safe-haven yen strengthened towards its highest level since October with investor sentiment fragile amid the threat of new rounds of tariffs from the administration of U.S. President Donald Trump, whereas the Canadian dollar hovered near a two-week trough with additional levies due to hit next week.

"U.S. data flow on net is now disappointing expectations, calling into question the U.S. exceptionalism narrative that had been USD supportive," said Tapas Strickland, head of market economics at National Australia Bank. "Trade policy uncertainty is certainly creeping into sentiment," hurting commodity-linked currencies and buoying those viewed as havens, Strickland said. The U.S. dollar index, which measures the currency against six major rivals, slipped 0.1% to 106.17 early in the Asian day, bringing it close to Monday's low of 106.13, the weakest level since December 10.

A day earlier, the U.S. Conference Board said its consumer confidence index dropped 7 points, its largest fall since August 2021, to 98.3, well short of the 102.5 estimate of economists polled by Reuters. The result added to other weak data, pushing expectations toward two quarter-point interest rate cuts by the Federal Reserve over the remainder of this year, with the next likely coming in July, according to market pricing. The two-year U.S. Treasury yield declined to 4.086% on Wednesday, sinking back towards the low of 4.074% from the previous day, a level not seen since November 1.

Treasury Secretary Scott Bessent said on Tuesday the economy is more fragile under the surface than economic metrics suggest, citing interest rate volatility, sticky inflation and job growth focused on the government sector, while also saying that tariffs are an important source of revenue. Trump said on Monday that tariffs against Canada and Mexico would proceed as scheduled, ostensibly from March 4. Bessent's comments and weak data set the U.S. dollar up to begin the global day down 0.1% at 148.865 yen , nearing Tuesday's low of 148.56 yen, its weakest since October 11.

The U.S. currency edged down from the highest since February 12 at C$1.4318, reached in the prior session, losing 0.1% to C$1.4302. It was steady at 20.46 Mexican pesos. The euro added 0.1% to $1.0520, drawing close to Monday's high of $1.0528, a level last seen on January 27. Optimism for more spending in Germany has supported the single currency, although election winner Friedrich Merz on Tuesday ruled out a rapid reform to state borrowing limits - known as the "debt brake" - and said it was too soon to say whether the outgoing parliament could wave through a massive military spending boost.

A survey of German consumer sentiment is due later in the day. Sterling was steady at $1.2669, holding close to Monday's more than two-month peak of $1.2690. The Australian dollar eased 0.1% to $0.6339 after data earlier in the day showed annual growth in consumer prices held steady in January. Bitcoin, the largest cryptocurrency by market capitalisation, drooped 0.5% to $88,246, after slumping 5.6% on Tuesday and touching the lowest level since mid-November at $86,003.11. Market nerves over U.S. tariffs has reinforced the blow to crypto investor confidence from last week's $1.5 billion hack of ether from the Bybit exchange.

South African Rand

Reuters: South Africa's rand was stable on Tuesday amid market caution about U.S. President Donald Trump's tariff plans and geopolitical stance. As of 1501 GMT, the rand traded at 18.3725 against the dollar, near its previous close of 18.3750. The dollar last traded about 0.4% weaker against a basket of currencies. Investors have traded cautiously after Trump said tariffs on Mexico and Canada would proceed as planned. South Africa's composite leading business cycle indicator fell 1.8% month-on-month in December, central bank data showed on Tuesday.

Domestic-focussed investors await January consumer inflation figures on Wednesday and producer inflation data for the same month on Thursday for clues on the health of Africa's most industrialised economy. On the stock market, the Top-40 index closed about 0.5% higher. South Africa's benchmark 2030 government bond was stronger, with the yield down 5 basis point to 9.065%.

Global Markets

Reuters: U.S. Treasury yields regained some lost ground on Wednesday after the House of Representatives advanced President Donald Trump's tax-cut agenda, while the dollar and oil prices struggled on mounting worries over the U.S. growth outlook. U.S. copper prices surged more than 4% while those elsewhere fell overnight after Trump on Tuesday ordered a probe into potential new tariffs on copper imports. The Republican-controlled U.S. House of Representatives late on Tuesday narrowly passed Trump's $4.5 trillion tax-cut plan, sending the budget resolution to the Senate, where Republicans are expected to take it up.

U.S. Treasury yields advanced on the news as investors anticipate more debt issuance ahead, with the benchmark 10-year yield rising roughly 3 basis points to 4.3271%. The two-year yield rose 2.7 bps to 4.1229%. "The plan moved through just a little bit quicker than people were expecting," said Tony Sycamore, a market analyst at IG. "You can see the way that yields are moving, it certainly caught them off guard a little bit." Yields had fallen to their lowest in months in the previous session as traders ramped up bets of more Federal Reserve rate cuts this year, on growing concerns over the outlook for the world's largest economy.

Data on Tuesday showed U.S. consumer confidence deteriorated at its sharpest pace in 3-1/2 years in February - the latest in a string of surveys suggesting that businesses and consumers were becoming increasingly rattled by the Trump administration's policies. "We're not surprised that we're getting these weak consumer confidence numbers. What we are surprised about, though, is that we're getting them now, before consumers see the impact of tariffs," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.

Fed funds futures now point to nearly 60 basis points worth of easing priced in by year-end, up from about 40 bps a week ago. That in turn weighed on the dollar, particularly against the yen. The greenback slid to an over four-month low against the Japanese currency in the previous session. It last traded 0.25% higher at 149.38 yen, thanks to the rebound in U.S. Treasury yields. In other currencies, the euro eased 0.11% to $1.0502, but was still hovering near a one-month high. Sterling was similarly within striking distance from a two-month top and last bought $1.2651.

"What we're seeing is the dollar weakens because of this soft economic data, but at some point, you hit a threshold where you get safe-haven flows into the U.S. dollar," said CBA's Capurso. "So if things get really, really bad in America, let's say the market starts pricing in a recession or something close to a recession, the U.S. dollar always goes up." Fears of slowing U.S. growth also cast a shadow over the outlook for oil demand. Brent futures were up 0.08% to $73.08 a barrel having fallen more than 2% in the previous session, while U.S. West Texas Intermediate crude rose 0.09% to $68.99 per barrel, reversing some of Tuesday's 2.5% slump.

Elsewhere, gold ticked up on Wednesday owing to some safe haven flows, rising 0.2% to $2,920.83 an ounce. In stocks, MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.67% on Wednesday, helped by a rally in Chinese markets. Hong Kong's Hang Seng Index surged more than 2%, with the Hang Seng Tech index also rising 3.6%. The CSI300 blue-chip index ticked up 0.15%, while the Shanghai Composite Index gained 0.5%. Chinese stocks have been on a tear over the past few weeks, driven by DeepSeek's AI breakthrough that reignited investor interest in China's technology capabilities.

However, the rally hit a speed bump earlier this week on news that the Trump administration plans to tighten semiconductor curbs on China and after the U.S. President signed a memorandum directing the Committee on Foreign Investment in the U.S. to restrict Chinese investments in strategic areas. "It is recklessly complacent to brush off all tariff threats from the U.S. as a bluff that is meant as leverage," said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho. "Especially not in China's case. Fact is, the U.S. intends to inflict significant industrial pain that compromises technological advantage and manufacturing clout or capacity."

Elsewhere, Japan's Nikkei fell more than 1%. U.S. stock futures rebounded after a mixed session on Wall Street, with Nasdaq futures rising 0.5%, while S&P 500 futures gained 0.35%. EUROSTOXX 50 futures similarly edged 0.46% higher, while FTSE futures tacked on 0.43%. AI poster child Nvidia reports its quarterly earnings later on Wednesday, which could offer clarity on demand and justify the sector's lofty valuations. Investor scepticism has grown over the billions that U.S. tech firms have channelled into AI infrastructure due to slow payoffs and breakthroughs at China's DeepSeek.

"Any signs of weakness in Nvidia's report could have outsized effects on investor sentiment towards AI stocks as a whole," said Saxo's global head of investment strategy Jacob Falkencrone. "This earnings report isn't just about Nvidia, it's about whether the AI revolution can maintain its breakneck pace."

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