FOREX-US dollar sinks, yen drops as risk tone improves ahead of Trump's tariff announcement

By Gertrude Chavez-Dreyfuss

NEW YORK, April 2 (Reuters) - The U.S. dollar fell against major currencies such as the euro, and sterling on Wednesday, while the safe-haven yen tumbled, as traders awaited details of U.S. President Donald Trump's plans for tariffs, which could reshape the global trading system.

While moves overall have been muted, risk sentiment seemed to have improved based on the price action, perhaps tracking U.S. equities.

The yen was down against a broad swath of currencies, while commodity currencies such as the Australian and New Zealand dollars as well as the Norwegian crown rose against the greenback. Commodity currencies typically rally when there is increased tolerance for risk.

The euro EUR=EBS rose 0.6% against the dollar to $1.0852, after earlier hitting a two-week high, while sterling GBP=D3 climbed 0.4% to $1.2978 ahead of a White House Rose Garden announcement scheduled for 2000 GMT that will likely see the imposition of steep new duties on U.S. imports.

Trump has for weeks trumpeted April 2 as "Liberation Day", and White House spokeswoman Karoline Leavitt said reciprocal tariffs on countries that impose duties on U.S. goods would take effect immediately after Trump's announcement.

"Dollar movements have remained relatively subdued leading up to Liberation Day, as the market reacts cautiously, awaiting clearer trade policies and the potential Federal Reserve response," said Uto Shinohara, senior investment strategist, Mesirow Currency Management in Chicago.

"While the announcement may resolve some uncertainty, numerous moving parts keep the outlook uncertain – ranging from the potential responses of other nations, to (Treasury Secretary Scott) Bessent's claim that the announced tariffs represent a peak starting point for negotiations, with sector-specific tariffs still to come."

Against the Japanese currency, the dollar gained 0.3% to 150.13 yen JPY=EBS.

The Australian dollar AUD=D3 was up 0.3% at US$0.6296, potentially boosted by investors seeking out currencies that are less exposed to tariffs.

Details about the size and scope of the trade barriers set to come into force remain unknown, but the Washington Post reported that Trump's aides were considering a plan that would raise duties on products by about 20% from nearly every country, rather than targeting certain countries or products.

"Reports on the scale of levies this afternoon have varied wildly, which is keeping price action muted," said Helen Given, director of trading at Monex USA in Washington.

"Simply put, no one wants to take any big bets in either direction without knowing what exactly they're betting on. I'd expect thin flows and choppy price action until this afternoon's announcement, which - if two months of precedent is any indication - could be more of a whimper than a bang."

Worries about the impact of an escalating global trade war on the world's largest economy and a slew of weaker-than-expected U.S. data have stoked recession fears and in turn undermined the dollar this year.

Given nervousness about the tariff announcement, the dollar reacted little to data showing U.S. private payrolls increased more than expected in March. Private payrolls rose by 155,000 last month after an upwardly revised 84,000 rise in February, according to the ADP National Employment Report.

There was also minimal reaction to a report indicating that factory orders rose 0.6% in February, after an upwardly revised 1.8% rebound in January. Economists polled by Reuters had forecast factory orders would climb 0.5% after a previously reported 1.7% advance in January.

The dollar, meanwhile, slid 0.3% against a basket of currencies to 103.85 =USD. That comes after the greenback dropped 3.1% in March, its worst monthly performance since November 2022.

Elsewhere, the greenback was up 0.1% against the Canadian dollar CAD=D3 at C$1.4316, and rose 0.4% against the Mexican peso MXN= to 20.433 pesos.

Canadian Prime Minister Mark Carney spoke with Mexican President Claudia Sheinbaum on Tuesday about Canada's plan to "fight unjustified trade actions" by the United States, the prime minister's office said.

Bank of Japan Governor Kazuo Ueda meanwhile said on Wednesday that planned new U.S. tariffs could have a huge impact on world trade, warning of a possible hit to global growth.