The dollar index fell to 104.3 on Thursday, after touching a nearly three-week high the day before, as investors weighed the impact of Trump’s new auto tariffs and digested mixed economic data.
Dollar weakens on auto tariffs
The Trump administration announced a 25% tariff on "all cars not made in the US," set to take effect on April 2, while Trump warned of imposing "far larger" tariffs on the EU and Canada if they coordinated efforts to counter US trade measures. This escalating trade war sparked concerns about slower US economic growth, rising costs for consumers, and renewed inflation pressures, causing uncertainty among investors.
Data released this week paint a mixed picture
Economic data released this week painted a mixed picture. On a positive note, GDP growth for Q4 was revised slightly higher to 2.4%, reflecting moderate economic expansion despite the ongoing trade tensions. Additionally, core PCE prices, which are closely monitored by the Federal Reserve as a key inflation indicator, rose slightly less than expected in Q4, easing some fears of runaway inflation. Initial jobless claims remained in line with expectations and consistent with the levels of previous weeks, pointing to ongoing strength in the labor market.
Some troubling signs
However, there were also some troubling signs. The goods trade deficit came in higher than expected, signaling a widening gap between imports and exports that could dampen domestic economic activity. Core durable goods orders also surprisingly contracted, pointing to potential weakness in business investment. Furthermore, consumer confidence, as measured by the Conference Board (CB), fell to a four-year low, suggesting that households may be feeling the pinch from rising prices and economic uncertainty. With these mixed signals in mind, investors are now turning their attention to Friday’s PCE report, which will provide further insight into inflation trends and could offer crucial guidance for the Federal Reserve’s next policy decisions.
