Dollar jumps as Trump tariffs loom

By Chuck Mikolajczak

NEW YORK (Reuters) - The dollar jumped on Thursday and was poised for its biggest daily percentage gain in more than two months as U.S. President Donald Trump's latest tariff comments overshadowed signs of slower economic growth.

The greenback initially pared gains after data showed weekly initial jobless claims rose by 22,000 to a seasonally adjusted 242,000, above the 221,000 estimate of economists polled by Reuters. 

Other data from the Commerce Department showed gross domestic product increased at a 2.3% annualized rate last quarter after accelerating at a 3.1% pace in the July-September quarter in its second estimate of the data. 

But the dollar quickly rebounded after Trump said 25% tariffs on Mexican and Canadian goods will go into effect on March 4 as scheduled because drugs are still pouring into the United States from those countries.

"It's a world where people do not know what's going on, so they will wait for clarity before they commit to bigger investments, and that leaves foreign exchange a little bit sidelined and a little bit more prone to these kind of quick catch-ups," said Bob Savage, head markets strategist at BNY in New York. 

"Tariffs will confuse people about what it means for the economics of the world and who's going to get hurt the most and who wins and who loses, and there's going to be a lot of noise and dust to figure out before anyone comes through all of that," Savage added. 

The dollar index, which measures the greenback against a basket of currencies, climbed 0.72% to 107.23, on track for its biggest daily percentage gain since December 18. The euro slumped 0.74%, on pace for its biggest drop since January 2, to $1.0405.

Prime Minister Justin Trudeau said Canada "will have an immediate and extremely strong response" if the United States imposes tariffs on Canadian imports next Tuesday. 

The Canadian dollar weakened 0.69% versus the greenback to C$1.44, and the Mexican peso was off 0.12% versus the dollar at 20.464. 

The greenback had fallen earlier this week nearly 4% from a more than two-year high in January on renewed worries about U.S. economic growth and inflation as Trump shifted tariff deadlines on Canada and Mexico. Investors are also bracing for the labor market impact from actions by the Department of Government Efficiency under Elon Musk.

The path of interest rate cuts by the Federal Reserve has become less clear, with markets pricing in 58 basis points of easing by year-end, and a cut of at least 25 bps not topping 50% until the June meeting.

Federal Reserve Bank of Cleveland President Beth Hammack said she expects U.S. central bank interest rate policy is on hold for the time being. Philadelphia Federal Reserve Bank President Patrick Harker expressed support for continuing to hold short-term U.S. borrowing costs in their current range. 

The European Central Bank is expected to cut rates next week to 2.50%, according to all 82 economists polled by Reuters who expected two further cuts by mid-year. 

Against the Japanese yen, the dollar strengthened 0.52% to 149.85. Bank of Japan Governor Kazuo Ueda told reporters at the close of a Group of 20 finance meeting in South Africa it was notable that many countries had warned of high global economic uncertainty.

Sterling weakened 0.51% to $1.2608.

In cryptocurrencies, bitcoin fell 0.66% to $83,896.18 after falling to $82,156.99 on Wednesday, its lowest since November 11.

(Reporting by Samuel Indyk and Brigid Riley; Editing by Shri Navaratnam, Sam Holmes, Kevin Liffey, Alex Richardson, Will Dunham and Richard Chang)