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Dollar Falls Most in Two Months on Report Trump to Limit Tariffs - BLOOMBERG
(Bloomberg) -- The US dollar fell sharply against most major currencies on Monday on bets that US President-elect Donald Trump’s tariff plans won’t be as broad and inflation-fanning as originally feared.
The Bloomberg Dollar Spot Index fell 0.9%, the most since November, while 10-year US Treasury yields erased an earlier rise after the Washington Post reported that Trump aides were exploring a tariff plan that only covers critical imports. The euro rallied over 1% against the US currency, its largest gain since August.
The dollar has benefited from expectations that Trump will levy the US’s major trading partners, hurting currencies including the yuan and euro. But a tariff program only covering key sectors such as the defense industrial supply chain would have a lesser impact on the global economy and US inflationary pressures than one covering a broader range of imports, meaning the dollar has room to weaken.
If confirmed, the plans “could help risk sentiment recover and weigh on the US dollar,” said Valentin Marinov, head of G10 FX strategy at Credit Agricole. The report is “consistent with the view that the Trump administration would be very careful not to fan inflation risks with aggressive blanket tariffs.”
The report also said Trump was mulling a so-called universal tariff program, meaning it applies to every country.
Trump’s threatened trade tariffs have dominated discussion among investors and economic policymakers since his election victory in November. A broad tariff program could hurt global economic growth and stoke consumer prices, especially in the event of retaliation from other jurisdictions.
Investors will be watching US December non-farm payrolls on Friday for further clues on the outlook for Federal Reserve interest-rate cuts. Traders added to bets on US monetary easing after the tariffs report, pricing in 42 basis points of Fed cuts in 2025 compared to 38 basis points earlier.
“What the Washington post story tells us is that a universal tariff plan is a part of the potential paths this new administration takes,” said Jordan Rochester, head of macro strategy at Mizuho. “But the good news is that it looks like they are purposely avoiding a blanket tariff on all imports to avoid a quick CPI spike.”
