Dollar Weakens as Trump Signals Gradual Tariff Rollout

The U.S. dollar fell broadly on Tuesday after President Donald Trump signaled a cautious approach to imposing new tariffs. Reports suggest that any trade taxes would be rolled out gradually, easing fears for economies heavily dependent on international trade.

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During his inauguration speech, Trump addressed policies on immigration and energy while outlining a broader foreign policy agenda, including plans to reclaim the Panama Canal. Tariffs received only a brief mention, with no clear details on their implementation or scope.

“This doesn’t eliminate the possibility of tariffs, but it does indicate a more careful and phased approach,” said Taylor Nugent, senior markets economist at National Australia Bank.

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The news prompted a swift reaction in financial markets. The dollar index dropped by 1.2% on Monday, marking its sharpest single-day decline since late 2023. By Tuesday, the index had settled at 108.060, just above a key support level at 107.70.

The euro climbed to $1.0416 after a 1.4% surge overnight, challenging resistance at $1.0435. The European Union’s significant trade surplus with the U.S. had positioned it as a likely target for potential tariffs.

Similarly, concerns about tariffs on Chinese goods—previously threatened to reach as high as 60%—eased in the absence of concrete numbers. This led to the dollar weakening by 1.0% to 7.2642 yuan in offshore trading.

Currencies tied to trade, such as the Australian and New Zealand dollars, gained around 1.5%. Against the Japanese yen, the dollar fared slightly better, dipping only 0.4% to 155.63. The yen’s recent strength has been fueled by speculation that the Bank of Japan may announce an interest rate hike at its upcoming meeting on Friday.

In U.S. rate markets, the response was muted due to the Martin Luther King Jr. Day holiday. Investors remain cautious, as a combination of tariffs, immigration policies, and tax cuts could stoke inflationary pressures. Current market pricing suggests the Federal Reserve will hold off on rate cuts until mid-year, with about 40 basis points of easing expected by the end of 2024.

Yields on 10-year Treasury notes are likely to decline from Monday’s 4.623%, with futures indicating a starting point near 4.59% when Tokyo trading resumes.

“This week will bring plenty of developments for markets to process. If trade and immigration policies avoid major disruptions to supply chains or the workforce, we could see inflation concerns ease somewhat,” analysts at ANZ noted in a research update.

In other market news, Trump’s support for cryptocurrencies drove Bitcoin to an all-time high of $109,071.86 on Monday. It later eased to $103,791 but remains a highlight of the broader optimism surrounding his administration’s stance on digital assets.

Also Read: Forex Trading: A Simple Guide to Understanding the Market and the Role of the US Dollar