The U.S. dollar inched higher Wednesday, but was still set to register its weakest month in over two years, weighed by the uncertainty generated by the Trump administration's volatile trade policies.

At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, climbed 0.1% to 99.080, but remained not far from the three year low it touched last week.

The index is down 4.6% this month, its weakest performance since November 2022.

Dollar pulled by tariffs, economic data

The greenback edged higher Wednesday, with sentiment boosted by the White House moving to soften the blow of U.S. President Donald Trump's auto tariffs.

This was another example of the Trump administration retreating from the sweeping tariffs unveiled in early April that prompted investors to flee the normally safe-haven U.S. dollar and Treasury debt.

However, the U.S. currency remains fragile amid persistent concerns that the duties will weigh on growth and could drive up inflation and unemployment.

Job openings dropped sharply in March, data showed Tuesday, and the U.S. consumer confidence index sank to a nearly five-year low in April.

The spotlight will now be on the advance GDP estimate for the January-March quarter due later in the session, amid expectations this will show the weakest growth rate since the second quarter of 2022, with a negative read likely.

The other two key releases today are the ADP employment figures for April and March's core PCE - the Federal Reserve's preferred measure of inflation.

"We have a neutral bias on the dollar today," said analysts at ING, in a note. "While the data flow should continue to prove a net-negative, markets are clearly welcoming Trump's efforts to ease some tariff pain. We still believe that a constant flow of constructive news on trade (especially regarding China) is needed to keep equities and the dollar supported, but for now, it might be enough to let the dollar stabilise into Friday's payrolls."

Euro set for sharp monthly gains

In Europe, EUR/USD traded 0.1% lower to 1.1378, after dropping 0.3% in the previous session.

That said, the common currency is up over 5% in April, on course for best monthly performance since November 2022.

German retail sales fell less than expected in March, dropping by 0.2% compared with the previous month, instead of the forecast 0.4% decrease, while French gross domestic product rose a meager 0.8% on an annual basis in the first quarter. 

Growth data for the wider eurozone bloc as well as German inflation numbers are due later Wednesday, and are likely to support the case for further rate cuts by the European Central Bank, with markets expecting another round of easing in June.

"Barring major deviations from consensus, we doubt these pre-tariff GDP figures will have much impact on the euro. The same can probably be said about April's preliminary CPI prints for Germany and France, also due this morning. Markets are fully buying into the European Central Bank's dovish narrative, and we think that it will take a much softer-than-expected CPI read to trigger even more dovish repricing," ING said.

GBP/USD edged 0.2% lower to 1.3382, on course for a 3.8% rise in April, its strongest monthly performance since November 2023.

BOJ meeting looms large

Elsewhere, USD/JPY traded 0.3% higher to 142.76, yet despite this the Japanese yen is on course for hefty gains of over 5% in April, in part driven by dip-buying from their March losses, as well as sustained weakness in the dollar.

The focus is now on the Bank of Japan, which is widely expected to keep rates unchanged at the conclusion of a two-day meeting on Thursday.

USD/CNY fell 0.1% to 7.2632, moving little despite official purchasing managers index data showing Chinese manufacturing activity shrank more than expected in April, while overall activity also weakened in the wake of a dire tariff exchange between Beijing and Washington.

Source: Investing.com