Market News

By Stefano Rebaudo

(Reuters) -The yen jumped and the dollar index edged higher on Tuesday as investors moved into safe-haven currencies ahead of reciprocal tariffs that U.S. President Donald Trump is due to announce on Wednesday.

Investors see the Japanese currency as a safer asset than the dollar in the current environment, as U.S. tariffs would likely hurt the U.S. economy as well.

Markets were quiet earlier in the session, with the dollar and the euro close to Monday's levels.

The greenback dropped 0.52% to 149.15 versus the yen, while the euro fell 0.8% to 160.85.

Markets will monitor the U.S. Job Openings and Labor Turnover Survey (JOLTS) and the ISM manufacturing index later in the session, both of which could provide further insights into how uncertainty in U.S. trade policy is hurting its economy.

The dollar index, which measures the U.S. currency against six rivals, was 0.1% higher at 104.30.

Trump announced late on Sunday that all countries would face new tariffs this week, though he provided no specific details. He had previously talked about 25% tariffs against European goods.

White House aides have drafted a proposal to impose tariffs of around 20% on most imports to the United States, the Washington Post reported on Tuesday.

"We expect roughly a one-month delay in (tariff) implementation, leaving space for negotiation," said Claudio Irigoyen, head of global economics at Bank of America.

European Commission President Ursula von der Leyen said the EU was open to negotiations with the U.S. on trade, but would retaliate strongly if necessary.

The euro dropped 0.3% to $1.0788 after gaining 4.5% in the first quarter of the year, its strongest quarterly performance since October-December 2022, thanks mainly to Germany's commitment to sharply increase fiscal spending.

"The risk of high tariffs disrupting trade and economic activity would potentially offset any U.S. federal revenue gains that the Trump administration seeks to use to further domestic policies," said Mark Haefele, global wealth management chief investment officer at UBS.

Geopolitical tensions remain in focus as the Chinese military said it had conducted drills in waters to the north, south and east of Taiwan on Tuesday.

Investors recently boosted their bets on future European Central Bank rate cuts due to tariff fears and weak economic data, driving bond yields and the single currency lower.

Money markets priced in approximately an 80% chance of an ECB easing move this month, amid mixed remarks from central bank officials.

The ECB's Fabio Panetta, who markets regard as a dovish policymaker, said the ECB needs to be cautious in reducing rates. Finnish Central Bank chief Olli Rehn said it should cut in April if inflation keeps moving in line with its projection.

"We remain generally cautious about following any euro/dollar rally into the tariff event and instead see mostly downside risks, barring any meaningful U.S. data surprise," said Francesco Pesole, forex strategist at ING.

The Australian dollar was flat at 0.6244 after the central bank left rates unchanged as expected. It hit 0.6217 on Monday, its lowest since March 4.

(Reporting by Stefano Rebaudo; Editing by Himani Sarkar, Stephen Coates, Aidan Lewis and Jan Harvey)