Dollar inches down in volatile trading as investors gauge Trump tariff comments

The US dollar edged down against a basket of currencies in volatile trading on Tuesday, after President Donald Trump stopped short of imposing harsh tariffs on friends and adversaries alike in the first hours of his new administration.

By 08:22 ET (13:22 GMT), the US dollar index , which gauges the greenback against six other major currencies, had fallen by 0.6% to 108.65.

But markets were still trying to suss out the direction of some currencies, with uncertainty remaining around Trump's trade plans. The Canadian dollar and Mexican peso were particularly impacted by Trump's statement that he would slap 25% duties on imports from those countries on February 1, with both falling in response to the comments.

Still, Trump did not move to roll out day-one universal tariffs, saying he is "not ready for that yet". But he directed federal agencies to look into persistent US trade deficits and perceived unfairness in trade practices by other countries.

In a memo, the Commerce and Treasury departments and the US Trade Representative were ordered by Trump to also investigate the "economic and national security implications and risks" resulting from trade deficits and recommend "appropriate" responses, "such as a global supplemental tariff or other policies" to remedy the matter.

Analysts at ING noted that markets are now "at least cautiously optimistic that indiscriminate universal tariffs won't be delivered all in one go", adding that there is more downside room for the Canadian dollar and Mexican peso to weaken "should Trump follow through" with the threat.

"Expect a lot of 'headline trading' and short-term noise, with risks still skewed for a stronger dollar," the analysts said.

Elsewhere, the euro eased against the US dollar, as traders assessed comments from Trump about America's trading relationship with the European Union. Trump told reporters that he would move to fix a trade imbalance either through levies or by Europe purchasing more US oil and gas.

The Japanese yen was little changed, with Japan viewed as less exposed to Trump's tariff threats than many other countries. Bets have also been rising that the Bank of Japan will opt to hike interest rates on Friday, giving additional support to the yen.

Compared to offshore Chinese yuan , the dollar was broadly flat as well. On the campaign trail, Trump vowed to hit China with tariffs of up to 60%, but his statements regarding the matter were vague on Monday.

"This back-and-forth on trade, whereby investors get excited by media report using words like 'deliberate', 'moderate', and 'targeted' only for the White House to make a contradictory bombastic claim on draconian tariffs, will be the new normal going forward, and people should (at the least) be prepared for a ton of headline risk on this topic," analysts at Vital Knowledge said in a note.

(Ayushman Ojha and Reuters contributed reporting.)

Source: Investing.com