Dollar firms amid tariff worries, geopolitical uncertainty

February 18, 2025 (MLN): The dollar firmed on Tuesday as traders weighed tariff worries, geopolitical uncertainties and the path to U.S. rate cuts, while the Australian dollar held near two-month highs after the Reserve Bank of Australia cut rates but cautioned on further easing.

Traders eyed talks on Tuesday aimed at ending the Ukraine war, as U.S. and Russian officials met in Saudi Arabia's capital Riyadh.

Ukraine, which is not attending the talks, says no peace deal can be made on its behalf, as Reuters reported.

The euro was 0.24% lower at $1.04575.

The single currency rose last week as optimism grew over prospects of a peace deal between Ukraine and Russia.

It traded at its highest in more than two weeks on Friday at around $1.051.

Sterling eased 0.1% to $1.2611.

"Markets will remain focused on any developments on the U.S.-Russia bilateral talks on Ukraine," said Francesco Pesole, foreign currency strategist at ING.

"But barring a major breakthrough, the optimistic push and relative upbeat risk sentiment may stall or fade in the next couple of days and the dollar can continue to recover some ground."

Investor focus this week is also on Wednesday's release of minutes from the Federal Reserve's January meeting.

The minutes may show how policymakers have accounted for the risk of a broader tariff war resulting from President Donald Trump's trade policies.

Data last week showed U.S. consumer prices increased at the fastest pace in nearly 18 months in January, reinforcing the Fed's message that it was in no rush to resume cutting rates amid growing economic worries.

"Trade policy uncertainty is at a record high ... and given that the labour market is solid, there is no compelling case to cut rates imminently," ANZ strategists said in a note.

ANZ now expects rate cuts to resume in the second half of 2025, with a further 75 basis points of easing anticipated. Markets though are only pricing in 40 bps of cuts for this year.

The dollar index , which measures its performance against six other major currencies, was 0.2% higher at 106.94, but still not far from the two-month low of 106.56 it touched on Friday.

The Reserve Bank of Australia (RBA) cut its cash rate by 25 basis points to 4.10% on Tuesday in its first easing since the 2020 pandemic, but was cautious about prospects of further policy easing.

That left the Australian dollar steady at $0.63599 after an initial burst of choppiness following the decision.

The Aussie touched a two-month high of $0.6374 on Monday and is up 2.4% in February.

Swaps imply just a 20% probability for a follow-up cut in April, although a move in May is still almost fully priced in.

Kerry Craig, global market strategist at JPMorgan Asset Management said the RBA's move looks more like an "insurance" cut, which keeps it in step with global central banks, rather than the start of an aggressive easing cycle.

Elsewhere, the yen was on the back foot after its recent gains as strong growth data bolstered odds of the Bank of Japan raising interest rates again this year, with July seen as a live meeting.

The yen was last at 151.9 to the dollar, down around 0.3% on the day.

Japan's solid October-December GDP data on Monday, coupled with recent inflation numbers, have helped lift the yen.

It is up 3.5% against the dollar so far in 2025.

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