The safe haven yen strengthened on Wednesday and the dollar sank to two week lows against a currency basket as the resignation of President Donald Trump’s top economic advisor fueled fears over a looming trade war.
USD/JPY was down 0.41% at 105.68 by 03:31 AM ET (08:31 AM GMT), not far from an overnight low of 105.46.
Markets were hit by a wave of selling following news that Gary Cohn resigned from his role as the National Economic Council director after failing to persuade Trump not to impose blanket tariffs on steel and aluminum imports into the U.S.
Last week Trump announced plans to impose imports tariffs of 25% on steel and 10% on aluminum in a recommitment to his nationalist trade agenda.
Cohn’s resignation fueled fears that the Trump administration will have a free hand to pursue a protectionist agenda and raised the chances of a full-blown trade war.
Market participants fear that the proposed tariffs could spark inflation and provoke retaliation from U.S. trade partners. Major holders of U.S. Treasuries, including China and the European Union, could reduce their holdings of U.S. assets in response.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was last at 89.52 after touching a two-week low of 89.38 overnight.
The euro was hovering near three-week highs, with EUR/USD at 1.2413.
The pound was a touch lower, with GBP/USD dipping 0.08% to 1.3874.
The Canadian dollar was lower, with USD/CAD up 0.36% to 1.2922 as investors turned their attention to a Bank of Canada interest rate decision later in the day.
The Bank of Canada has said that uncertainty about the future of the North American Free Trade Agreement is weighing increasingly on the outlook for Canada’s economy.
The central bank is widely is expected to leave its benchmark interest rate on hold at 1.25% on Wednesday.