Market Volatility: Dollar Slides as Trump’s Tariff Plans Come into Focus
The US dollar has taken a hit, slipping towards a one-week low against major currencies as investors weigh the potential impact of President-elect Donald Trump’s proposed tariffs. The greenback’s decline comes on the heels of a report suggesting that Trump’s aides are exploring targeted tariffs on sectors critical to national security, rather than the sweeping 10-20% tariffs initially promised.
A Shift in Sentiment
While Trump has denied the report, the market seems to be pricing in a more nuanced approach to trade policy. The US dollar index, which tracks the currency’s performance against a basket of peers, fell 0.25% to 108.03, its lowest level since December 30. This marks a significant reversal from early January, when the index surged to a high of 109.58 on expectations of fiscal stimulus and reduced regulation.
Euro and Sterling Gain Ground
The euro zone, a prime target of Trump’s tariff threats, has seen its currency strengthen, with the euro adding 0.16% to $1.0407. The sterling has also gained, rising 0.14% to $1.25395. According to Chris Turner, global head of markets at ING, “some doubt about the potential breadth of the tariffs could see an overbought dollar hand back a little more of its recent gains.”
Eyes on Euro Area Inflation Data
Markets are now focused on euro area inflation data, due later in the session, with some analysts forecasting an acceleration to 2.5% year-on-year. This could have significant implications for European Central Bank policy, potentially challenging the pricing of rate cuts in the first half of 2025.
Yen Weakens, Aussie and Kiwi Strengthen
The dollar has gained 0.09% against the yen, reaching 157.46, while the Australian and New Zealand dollars have resumed their climbs, with the Aussie up 0.46% at $0.6275 and the kiwi up 0.66% at $0.5681. Bitcoin, meanwhile, remains steady at around $101,781, trading at its highest levels since December 19.
What’s Next?
As the market continues to digest the implications of Trump’s tariff plans, all eyes will be on the US JOLTS job opening data and the ISM Services index for December, due later in the session. With the dollar’s recent gains potentially vulnerable to a shift in sentiment, investors will be watching closely for any signs of a change in direction.
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