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What’s happening: The US dollar declined on Wednesday, extending its losing streak from the beginning of this week.
What happened: Having been heavily shorted this week, the greenback suffered the steepest three-day decline since 2022 on Wednesday.
Apart from trade war jitters, investor concerns grew after the US reported negative economic data.
Why it matters: The US dollar has been under pressure on growing fears of a trade war after President Donald Trump slapped tariffs on Canada, Mexico and China. Canadian Prime Minister Justin Trudeau responded with retaliatory tariffs worth $107 billion on US goods. Mexico has adopted a more measured stance, delaying the announcement of retaliatory tariffs till the end of the week.
China was prompt to impose 10%-15% tariffs on US agricultural products. Also, China’s embassy posted on X on Wednesday: “If war is what the US wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”
Meanwhile, the US reported economic data that fuelled concerns around a slowdown in the economy. US private businesses added 77,000 workers to their payrolls in February, much below the 186,000 job adds in January. The figure not only fell significantly short of market expectations of 140,000, but also represented the smallest increase in payrolls in seven months.
The S&P Global services PMI fell to 51 in February, from 52.9 in the previous month, while the composite PMI declined to 51.6 last month, from January’s reading of 52.7.
New factory orders growing by 1.7% in January after two consecutive months of declines gave markets something to cheer about. The ISM services PMI also supported market sentiment, rising to 53.5 in February, from 52.8 in January, and beating market forecasts of 52.6.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, declined by 1.33% to 104.34 on Wednesday.
What to watch: Investors will monitor comments by the Trump administration and how the countries under attack respond. Markets will also watch the release of balance of trade and initial jobless claims by the US today (17:30 UAE Time).
The US trade deficit widened to $98.4 billion in December, from $78.9 billion in the previous month. The consensus calls for a further worsening of the trade deficit to $127.4 billion in January. Initial jobless claims in the US, which rose by 22,000 to 242,000 in the third week of February, is expected to rise further to 235,000.
Context: US stock indices climbed on Wednesday, with auto stocks responding to Trump’s tariff exemption and tax concessions.
Details: Auto stocks had declined sharply on Tuesday, which is when the tariffs announced by the Trump administration on Canada and Mexico came into effect.
US President Donald Trump announced his decision on Wednesday to grant automakers an exemption of a month for tariffs on imports from Canada and Mexico. The exemption is only for autos coming through the North American free trade agreement, the USMCA.
White House Press Secretary Karoline Leavitt said the US President was open to additional exemptions.
During his address to Congress on Tuesday evening, Trump said that interest payments made on auto loans would become tax deductible, provided the loan is for purchasing vehicles made in the US. “We’re going to have growth in the auto industry nobody has ever seen,” he stated.
Shares of General Motors climbed 7.22% to settle at $48.48 on Wednesday, while Tesla rose 2.60% to $279.10. Ford’s stock rose 5.75% to close at $9.65.
The Dow Jones index edged higher by 1.14% to 43,006.59, while the S&P 500 gained 1.12% to reach 5,842.63 and the Nasdaq 100 surged 1.46% to settle at 18,552.73 on Wednesday.
What to watch: Investors will monitor further announcements by the Trump administration, especially related to tariff and tax exemptions.
Other Markets: European trading indices closed mostly higher on Wednesday, with the Stoxx 600, DAX and CAC 40 up by 0.91%, 3.38% and 1.56%, respectively, and the FTSE 100 down by 0.04%.
French President Emmanuel Macron said during a televised speech that Russian aggression would not stop at Ukraine and is a threat to Europe in case the US does not side with them. The news sent the RUB/USD pair slightly lower in forex trading this morning.
South Korea’s inflation rate eased to 2% in February, from a six-month high of 2.2% in January. However, the figure coming in higher than market expectations of 1.95% exerted pressure on the KRW/USD forex pair.
Australia’s trade surplus widened to $5.62 billion in January, from $4.92 billion in December. The figure coming in higher than market expectations of $5.50 billion sent the AUD/USD pair higher in forex trading this morning.
The Philippines said its unemployment rate fell to 4.3% in January, from 4.5% in the year-ago month. However, the unemployment rate being much worse than the previous month’s reading of 3.1% exerted pressure on the PHP/USD forex pair.
Vietnam reported a trade deficit of $1.55 billion for February, versus a surplus of $1.38 billion surplus in the same month last year. This being the first trade deficit since May 2024 sent the VND/USD pair lower in forex trading this morning.
Eurozone’s HCOB Construction PMI (12:30 UAE Time), Germany’s HCOB Construction PMI (12:30 UAE Time), France’s HCOB Construction PMI (12:30 UAE Time), Italy’s HCOB Construction PMI (12:30 UAE Time), South Africa’s current account (13:00 UAE Time), UK’s S&P Global Construction PMI (13:30 UAE Time), Cyprus’ inflation rate (14:00 UAE Time), Eurozone’s retail sales (14:00 UAE Time), Ireland’s current account and GDP growth (15:00 UAE Time), Turkey’s interest rate decision (15:00 UAE Time), Turkey’s foreign exchange reserves (15:30 UAE Time), Israel’s business confidence (16:00 UAE Time), ECB interest rate decision (17:15 UAE Time), and Canada’s balance of trade (17:30 UAE Time).
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