The US dollar steadied Tuesday after US President Donald Trump levied tariffs on metal imports, prompting demand for the safe haven currency amid concerns over a brewing trade war.

At 03:50 ET (08:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely flat at 108.200.

Dollar remains relatively bid 

Trump on Monday evening signed executive orders imposing 25% tariffs on all imports of steel and aluminum. He also flagged the potential for higher metal tariffs, and said he was preparing reciprocal tariffs on major U.S. trading partners.

“The DXY dollar index is staying relatively bid above 108.00 as markets remain gripped by the tariff threat,” said analysts at ING, in a note. “’Reciprocal’ tariffs could be due any day and the market remains uncertain whether these would apply only to certain key sectors, such as autos, pharma or semiconductors – or more broadly.”

Trump’s policies, including higher tariffs, are widely seen as potentially fueling inflation in the US, which could keep the Federal Reserve from easing monetary policy further any time soon - a boost to the dollar. 

With this in mind, the latest US consumer price index for January will be in the spotlight on Wednesday, as it is likely to factor into the outlook for interest rates. 

Ahead of this, traders are likely to focus on Fed Chair Jerome Powell’s testimony on Capitol Hill over the next two days, where he is sure to be questioned about his thinking on inflation and tariffs.

Dovish BOE hits sterling 

In Europe, EUR/USD traded largely unchanged at 1.0308, close to last week’s more than two-year low amid concerns that Trump’s tariffs will impact growth in the European Union, a region that is already struggling.

“Europe is now bracing for other sectors, such as autos, to be tariffed,” said ING. “There is little justification for the EU bloc as a whole to be hit with reciprocal tariffs since the EU tariff regime is relatively low. But, presumably, European politicians are more fearful about broader tariffs in April once the US Commerce Department delivers its report on why the US runs large trade deficits.”

GBP/USD traded 0.2% lower to 1.2349, as traders began to factor in a potentially more dovish Bank of England after policymaker Catherine Mann, formerly seen as a hawk, voted for a larger 50 bp rate cut last week.

In an interview with the Financial Times, published earlier Tuesday, Mann said companies will struggle to raise prices this year as consumers are hit by job losses and spending softens.

 

Mann is set to speak later in the session, and “further comments along those lines this morning could see the markets firm up pricing of three further 25bp BoE cuts this year. Currently the market prices just 66bp,” ING added.