The U.S. dollar weakened on Monday after President-elect Donald Trump indicated he would not impose trade tariffs immediately upon taking office. Market expectations for broad-based tariffs on his first day subsided, leading to a decline in the dollar index. Other currencies, including the yuan and yen, showed strength.
The dollar experienced a significant decline on Monday following comments from U.S. President-elect Donald Trump , who indicated that he would not immediately impose trade tariffs upon assuming office later in the day. According to a report by the Wall Street Journal on Monday, Trump will release a broad trade memorandum that avoids announcing new tariffs on his first day in office. An official from the incoming administration confirmed the report.
Market participants had anticipated Trump to implement trade tariffs through executive orders, which would have fueled expectations for a large-scale trade war, rising inflation, and prolonged Federal Reserve policy rates. 'Markets appear to be reassured by a headline suggesting that day-one Trump tariffs are off the table. However, we believe this confidence might be misplaced. Broad-based day-one tariffs were always improbable, but more targeted import levies shortly after inauguration day remain a possibility,' stated Nick Rees, head of macro research at Monex Europe.The dollar index, which gauges the U.S. currency against six other major currencies, plummeted by as much as 1.3% and settled at a 1% decrease at 108.23. Last week, the index reached a 26-month high of 110.17. Trading volumes were lower than usual due to U.S. markets being closed for the Martin Luther King Jr. Day holiday. Since the November presidential election, the U.S. dollar has surged by 4% as traders anticipate Trump's policies will stimulate economic growth and inflation. Investor focus remained intensely on the policies Trump would implement on his first day in office. At a rally on Sunday, Trump declared his intention to impose strict limitations on immigration. Some analysts speculated that Trump might invoke the International Emergency Economic Powers Act (IEEPA), a federal law that empowers the president to regulate economic transactions in response to extraordinary and unusual threats. On the fiscal front, 'we will be closely observing if President Trump mentions fiscal stimulus,' said Ajay Rajadhyaksha, research analyst at Barclays. Meanwhile, softer U.S. inflation data and the prospect of multiple Federal Reserve rate cuts have recently boosted risk assets, including bitcoin, which soared to a record high of $109,071.86 on Monday and was last up 4.2% at $107,120. Trump has pledged to be a 'crypto president' and is expected to issue executive orders aimed at promoting widespread adoption of digital assets. Trump's newly launched cryptocurrency, known as $TRUMP, skyrocketed to a market value of nearly $12 billion, attracting billions in trading volume by Monday. The First Lady Melania Trump's competing token, launched on Sunday, reached a market capitalization of $1.9 billion. The Chinese yuan strengthened by 1% on the day to trade at 7.267, its highest level since mid-December. It has outperformed most of its peers since the U.S. elections despite expectations for substantial U.S. tariffs, as the People's Bank of China has continued efforts to maintain currency stability. Japan's yen also held firm, leaving the dollar down 0.4% at 155.61 ahead of the Bank of Japan's policy meeting this week, where it is widely anticipated to raise interest rates.
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