Dollar retreats on signs Trump tariffs to be measured

By Wayne Cole

SYDNEY (Reuters) - The dollar nursed broad losses on Tuesday after U.S. President Donald Trump stopped short of imposing new tariffs and reports suggested any new taxes would be imposed in a "measured" way, a major relief for trade-exposed currencies.

Trump used his inauguration speech to announce emergencies on immigration and energy and a more expansionist foreign policy, including a pledge to take back the Panama Canal.

Yet there was only a brief mention of tariffs and, so far, no details on how or when they might be unrolled.

"It doesn't mean tariffs won't be imposed, but it has been taken as an indication towards gradualism and against universality," said Taylor Nugent, a senior markets economist at National Australia Bank (OTC:NABZY ).

The reaction in markets was swift, with the dollar index falling 1.2% on Monday in the sharpest daily loss since late 2023. The index last stood at 108.060, just above support around 107.70.

The euro was up at $1.0416, having rallied 1.4% overnight to test resistance at $1.0435. The EU runs a sizable trade surplus with the United States and was seen as a major target for Trump's tariffs.

Likewise, Trump had threatened China with tariffs of up to 60% so the absence of any hard numbers on Monday saw the dollar dive 1.0% to 7.2642 yuan in offshore trade.

The Australian and New Zealand dollars, both open countries that rely heavily on trade, saw gains of around 1.5%.

The dollar fared relatively better on the Japanese yen at 155.63 having dipped only 0.4% overnight.

The yen had made gains last week on growing expectations the Bank of Japan would raise rates at its policy meeting this Friday.

There was limited initial reaction in U.S. rate markets, in part due to the Martin Luther King Jr. Day holiday and which had feared a combination of tariffs, immigration restrictions and tax cuts might risk rekindling inflation.

Markets are still not priced for another rate cut from the Federal Reserve until June or July, and have around 40 basis points of easing implied by year end.

Yields on 10-year Treasuries looked likely to dip from 4.623% when Tokyo trade resumes, with futures implying a 4.59% start.



"There will be a huge amount for markets to digest this week, but if the implementation of trade and immigration policy does not negatively disrupt supply chains and the labour force, financial markets may unwind some of their recent inflation caution," wrote analysts at ANZ in a note.

Trump's support for crypto currencies helped bitcoin hit a record high on Monday at $109,071.86, before easing back a little to $103,791.

Source: Investing.com