Unlock the White House Watch newsletter for free
A guide to what the 2024 US election means for Washington and the world.
The U.S. dollar fell on Monday after reports that President-elect Donald Trump’s administration is considering watering down a campaign promise to impose steep tariffs on imported goods.
The dollar index, which measures the country’s basket of six countries, initially rose by more than 1% after The Washington Post reported that tariffs could be limited to critical imports. It fell.
In November, President Trump threatened to impose across-the-board tariffs of 10% to 20% on all trading partners.
However, President Trump denied the report as “fake news,” and the dollar’s decline narrowed to 0.7% later that day.
The euro initially rose 1.2% to $1.043 after the news, but gave up some of its gains and traded at $1.039 following the president-elect’s denials.
The pound, which was the best-performing G10 currency against the dollar last year, initially rose to $1.255, but has since fallen to $1.252.
Chris Turner, head of global markets at ING, said there was a “relief rebound” in the euro against the dollar, with hopes that automakers in the region would be spared tariffs following reports that tariffs would be reduced. said to have caused. He added that tariffs may have “lower inflation than initially expected.”
Lee Herdman, senior currency analyst at MUFG, said Monday’s report triggered “a sense of relief on the part of some investors that the tariffs were not as bad as originally feared” and that “the recent U.S. dollar “This caused a sharp reversal in the rise,” he said. More intensive tariffs would help “weaken (their) destructive impact,” he added.
U.S. Treasuries were little changed after selling off in recent months as investors feared a rise in inflation due to widespread tariffs. The yield on two-year U.S. Treasuries, which is linked to interest rate forecasts, fell 0.01 percentage point to 4.27%.
The dollar’s weakness comes after a strong rally in the world’s de facto reserve currency that began in early October as markets began pricing in the prospect of a Trump victory. “The market correctly predicted Trump’s victory,” said Jane Foley, senior currency strategist at Rabobank.
Analysts and economists say President Trump’s pro-growth and potentially inflation-inducing policies will limit the number of interest rate cuts the Federal Reserve can make this year, increasing demand for the dollar against other major currencies. I predict that. The situation was further exacerbated by investors’ belief that the European Central Bank would cut interest rates more aggressively due to the impact of negative growth on the euro area.
In mid-December, the Federal Reserve released an economic forecast that suggests interest rates will decline less in 2025 than previously expected. Last week, Fed officials warned of the threat of a resurgence in U.S. inflation after President Trump took office.
Investors expect the U.S. central bank to cut interest rates at least once this year, with a 60% chance of a second rate cut.
Expectations for interest rate cuts by the ECB have receded slightly, with interest rates expected to be cut by just under four quarter points by the end of this year.
