The US Dollar on Wednesday strengthened against both the Euro and Yen as traders speculated that the tariffs expected to be announced by US President Donald Trump next week might not be as severe as initially anticipated.

Meanwhile, the British pound dropped to a two-week low following a slower inflation report and the latest fiscal statement from UK Chancellor Rachel Reeves.

The greenback has fluctuated between periods of optimism and concern as traders debate whether tariffs imposed on trading partners will be stricter or more lenient. There are worries that these levies could hamper growth and potentially spark inflation once again, Reuters reports.

“Everybody's trying to figure out what's going to be done on tariffs,” said Steve Englander, head of global G10 FX Research and North America macro strategy at Standard Chartered Bank's NY Branch.

“They want to avoid market pressure before there's an announcement. But I think there's also some risk that, when push comes to shove, the announced tariffs will be more hawkish than the market's pricing,” he went on to say.

On Monday, Trump announced that automobile tariffs would be implemented soon, although he suggested that not all of his proposed levies would take effect on 2^nd April, with some countries potentially receiving exemptions.

The Dollar also saw a slight boost on Wednesday following an unexpected increase in durable goods orders for February.

Elsewhere, the Euro has struggled to gain momentum from tariff optimism this week, heading for its sixth consecutive day of declines against the Dollar.

At the time of writing, it dropped to $1.0766, the lowest level since 6^th March.

European Union trade commissioner Maros Sefcovic met with Trump's top trade officials on Tuesday in an attempt to prevent steep US tariffs on EU goods next week, but the outcome of those discussions remains uncertain.

Furthermore, the British Pound dropped to its lowest level since 11^th March on Wednesday, falling 0.35% to $1.2898.

Gilt yields also declined after the UK's Debt Management Office announced it would issue fewer bonds than initially expected in 2025/26, easing market concerns about an oversupply.

Meanwhile, data showed British inflation slowed to 2.8% in February, down from 3.0% in January.