The U.S. dollar bounced back from an 11-week low on Wednesday, supported by a slight recovery in Treasury yields despite a series of disappointing economic reports. Meanwhile, tensions over new U.S. tariffs on Canada and Mexico have added to market volatility, weighing on both currencies.
Dollar recovers as Treasury yields stabilize
The U.S. dollar index climbed 0.3% to 106.51, rebounding from its weakest level since December 10. This recovery was driven by rising short-term Treasury yields, which had briefly hit a four-month low. However, traders remain cautious, as recent consumer confidence data showed its sharpest decline since 2021, reinforcing expectations for Federal Reserve rate cuts later this year.
Tariffs weigh on Canadian and Mexican currencies
With U.S. tariffs on Canada and Mexico set to take effect on March 4, both the Canadian dollar and Mexican peso saw declines. The USD/CAD pair hit C$1.4332, its highest level since February 12, while the Mexican peso weakened to 20.49 per dollar. Investors are wary of potential trade disruptions and inflationary pressures stemming from the new tariffs.
Markets remain on edge
While the dollar rebounded, economic uncertainty lingers, with weaker data pointing to a potential slowdown. Treasury Secretary Scott Bessent highlighted concerns over interest rate volatility, inflation, and slowing job growth, adding to the cautious sentiment. Investors will be watching upcoming economic reports and trade developments closely for further market direction.
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