Dollar dips towards one-week low as market ponders proposed Trump tariffs

By Kevin Buckland and Stefano Rebaudo

(Reuters) -The U.S. dollar eased towards a one-week low versus major peers on Tuesday as traders considered whether President-elect Donald Trump's proposed tariffs would be less aggressive than promised.

On Monday, the greenback slid against the euro and sterling following a report in the Washington Post that Trump's aides were exploring plans that would apply tariffs only on sectors seen as critical to U.S. national security.

However, the currency made up some ground after Trump denied the report in a post on his Truth Social platform.

The U.S. dollar index , which gauges the currency against the euro, sterling and four other rivals, eased 0.25% to 108.03 as of 0730 GMT, after dropping to as low as 107.74 overnight, its weakest since Dec. 30.

On Jan. 2, the index pushed to as high as 109.58 for the first time since November 2022, largely due to expectations that Trump's promised fiscal stimulus, reduced regulation and higher tariffs would boost U.S. growth.

"His (Trump's) 10-20% universal tariffs were always seen as unlikely to eventuate in such stringent form - so the reporting from the Washington Post has cemented this widely held view, even if Trump has played it down," said Chris Weston, head of research at Pepperstone.

"Clearly, the last thing Trump wants at this point is to lose his leverage and credibility going into negotiations ... even if the WaPo reporting becomes the reality over time."

The focus will also be on U.S. JOLTS job opening data and the ISM Services index for December later in the session.

The euro zone has been a particular target of Trump's tariff threats, and the euro added 0.16% to $1.0407, after jumping to a one-week high of $1.0437 on Monday.

"While Trump's rebuttal of the original article has curtailed the euro/dollar bounce, some doubt about the potential breadth of the tariffs could see an overbought dollar hand back a little more of its recent gains," said Chris Turner global head of markets at ING.

"We see no need to change our euro/dollar forecast profile of a gentle grind towards 1.02 this year," he added, recalling that the European Central Bank is expected to cut rates more quickly than the Fed.

Markets await euro area inflation data later in the session, with some analysts forecasting an acceleration to 2.5% year-on-year from 2.2% in the previous month.

"This (a possible hawkish market reaction to data) likely ends any residual hopes for 50 bps cut increments anytime soon and may further challenge the pricing of the pace of European Central Bank cuts in the first half of 2025," said Citi.

Money markets priced in an ECB deposit facility rate at 2.1% in July from 1.9% before Christmas. The depo rate is currently at 3%.

Sterling was up 0.14% at $1.25395, following its climb to as high as $1.2550 in the prior session.

However, the dollar gained 0.09% to reach 157.46 yen, and earlier rose as high as 158.425 yen for the first time since July 17, drawing support from higher U.S. Treasury yields.

The yen may have also been sold as investors adjusted positions at the start of the new year, said Shinichiro Kadota, a currency strategist at Barclays (LON:BARC ), who forecasts the dollar to be at 158 yen at end-March.



The risk-sensitive Australian and New Zealand dollars resumed their climbs, with the Aussie up 0.46% at $0.6275 and the kiwi up 0.66% at $0.5681.

In cryptocurrencies, bitcoin was little changed at around $101,781, trading at its highest levels since Dec. 19.

Source: Investing.com