The U.S. dollar declined on Wednesday amid uncertainty over President Trump’s tariff plans, while sterling fell on disappointing government borrowing data.

The dollar index, which measures the greenback against a basket of six other currencies, was trading 0.1% lower at 107.755 after a drop of more than 1% at the start of the week.

Dollar Loses Ground Amid Tariff-Related Uncertainty

The dollar remained under pressure as traders attempted to assess the full implications of President Donald Trump’s tariff plans and the potential impact on major trading partners.

Trump announced late Tuesday that his administration was considering a 10% tariff on goods imported from China, set to take effect on February 1. On the same day, Canada and Mexico could face levies of approximately 15%.

Additionally, Trump indicated that Europe would also be subject to tariffs on its imports, though he has refrained from enacting these measures despite signing several executive orders since taking office on Monday.

“Data will play a secondary role this week, as all attention will be on Trump’s first executive orders,” noted ING analysts in a report. “Meanwhile, the Fed is in its quiet period ahead of next Wednesday’s meeting. Expect a lot of ‘headline trading’ and market noise in the near term, with risks still tilted toward a stronger dollar.”

Pound Falls After Disappointing Borrowing Data

In Europe, GBP/USD fell 0.1% to 1.2349 after data revealed that Britain posted a larger-than-expected budget deficit in December, partly due to rising interest costs on government debt.

According to the Office for National Statistics, net borrowing reached 17.8 billion pounds in December, exceeding last year’s figure by over 10 billion pounds.

Higher yields on British government bonds have raised the cost of servicing the nation’s debt, potentially forcing the new Labour government to cut public spending in order to adhere to fiscal rules.

Euro Shows Modest Gains Amid Broader Weakness

EUR/USD rose slightly to 1.0429, although the euro remained weaker overall as the European Central Bank (ECB) is anticipated to cut interest rates more aggressively than its counterparts, the Federal Reserve and the Bank of England.

The ECB is widely expected to reduce rates four times within the next six months, with the first cut likely occurring next week.

“The direction is very clear,” ECB President Christine Lagarde stated during an interview with CNBC in Davos. “The pace we will see depends on the data, but a gradual move is certainly something that comes to mind at the moment.”

Bank of Japan Meeting on the Horizon

In Asia, USD/JPY edged down 0.1% to 155.69 ahead of the Bank of Japan’s two-day monetary policy meeting later this week.

The BOJ is expected to raise interest rates on Friday and may reaffirm its commitment to further rate hikes if the economy continues to recover.

Chinese Yuan Remains Weak

USD/CNY traded flat at 7.2715 as the Chinese yuan struggled to gain strength. Sentiment was dampened by Trump’s announcement that he is considering imposing 10% tariffs on Chinese imports starting February 1.