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Dollar Climbs as Trump Puts Tariff Threats Back on the Agenda - BLOOMBERG
(Bloomberg) -- The dollar strengthened against all of its peers on Tuesday as comments from President Donald Trump and his Treasury Secretary stoked concern about widespread US trade tariffs.
The Bloomberg Dollar Spot Index rose as much as 0.5% after Trump said he was considering universal tariffs on everything from steel and copper to semiconductor chips. The euro fell as much as 0.7%, while the yen lost nearly 1%.
The moves follow weeks of back and forth over the scope of potential tariffs, with Bloomberg News reporting earlier this month discussions within Trump’s economic team about slowly ramping up levies. A report from the Financial Times late on Monday suggested that Scott Bessent, the new head of the Treasury Department, supports gradual universal tariffs starting at 2.5%.
Trump later added he wants tariffs “much bigger” than 2.5% and strongly suggested he could impose specific levies on automobiles from Canada and Mexico — countries that he’s already threatened with 25% across-the-board tariffs as soon as Feb. 1. His remarks follow a brief trade spat with Colombia, which had already put the trade debate front and center this week.
“This raises the prospect of tariffs that will be around for some time, and that the threat to implement them is credible, and this will support the dollar,” said Nick Rees, head of macro research at Monex Europe.
US Treasuries fell, paring a rally the previous day that had sent yields to the lowest levels this year. The 10-year yield rose three basis points to 4.56%.
The dollar rally followed a wild day for global markets, after progress on a Chinese AI model wiped $589 billion from Nvidia Corp.’s market capitalization and fueled doubts about US tech exceptionalism. The news had initially pressured the dollar lower on the view that questions about the sustainability of US economic outperformance could tarnish the allure of its assets.
“A deeper selloff in US tech stocks poses downside risks to our outlook for a stronger US dollar especially if driven by a paring back of expectations for continued US exceptionalism,” MUFG FX strategist Lee Hardman wrote in a note.
Investors had piled into bullish dollar positions on bets that Trump’s policies would fuel price pressures and keep US interest rates elevated. But signs of exhaustion are emerging: Speculators pulled back from their most bullish greenback positions since 2019 during the week to Jan. 21, according to a Bloomberg analysis of data from the Commodity Futures Trading Commission.
Still, selling the US currency has proven to be a painful trade in recent months. The greenback — which typically gains from tariff expectations — advanced more than 7% during the last quarter of 2024.
“This just shows how fluid developments are and uncertainty on timing, magnitude and scope should continue to drive two-way trades, especially after the clean-out of some dollar long positions last week,” said Christopher Wong, strategist at Oversea-Chinese Banking Corp.
(Adds comment, updates prices, context throughout.)
