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The dollar fell on Monday after reports that President-elect Donald Trump's administration is considering easing his campaign pledge to implement broad tariffs on imported goods.
The US dollar index, which measures the currency against a basket of six peers, fell 1 percent in morning trading after the Washington Post reported that potential tariffs may be limited to vital imports.
In November, Trump promised to do so An all-inclusive fee of 10 or 20 percent To all business partners.
Chris Turner, head of global markets at ING, said the reports sparked a “comfortable rise” in the euro against the dollar, with hopes the region's automakers could be rescued. He added that the tariffs may also be “less inflationary than initially expected.”
Shares of European automakers, which have been hurt in recent months by fears of being targeted by the Trump administration, rose. The Stoxx Europe 600 auto and spare parts index rose 3.7%. BMW An increase of approximately 6 percent.
The euro rose 1.1 percent against the dollar to $1,042, heading toward its best day in more than a year. It was the single currency I paid to the lowest level in two years due to trade war concerns. The pound, which was the best performing G10 currency against dollar Last year, it rose 1 percent to $1,254.
Lee Hardman, senior currency strategist at MUFG, said Monday's reports “provoked some relief among investors that the initial tariffs would not be as bad as feared,” leading to a “sharp reversal of recent US dollar gains.” He added that more focused tariffs would help “mitigate their disruptive impact.”
US government bonds, which had been sold off in recent months as investors braced for higher inflation driven by broad tariffs, regained some ground. The yield on two-year US government bonds, which moves with interest rate expectations, fell 0.02 percentage point to 4.26 percent, as the price of the debt rose.
The dollar sell-off comes after a strong rally in the world's actual reserve currency that began in early October, as the market began to estimate a greater likelihood of Trump winning the election. “The market correctly predicted a Trump win,” said Jane Foley, chief foreign exchange market strategist at Rabobank.
Analysts and economists expect Trump's pro-growth policies, and perhaps inflationary policies, to limit the number of times the US Federal Reserve cuts interest rates next year, boosting demand for the dollar compared to other major currencies. This has been exacerbated by investor bets that the impact of negative growth in the eurozone will prompt the European Central Bank to cut interest rates more aggressively.
In mid-December, the Federal Reserve published economic projections indicating that interest rates would fall less in 2025 than previously hoped. Last week, a senior Fed official said He warned of the risk of a return of inflation in the United States After Trump took power.
Investors expect the US central bank to cut interest rates at least once this year, with a 70 percent chance of a second cut of a quarter of a percentage point. This possibility increased slightly on Monday.
Expectations of interest rate cuts by the European Central Bank have eased slightly, with just under four quarter-point cuts expected this year.
