US dollar retreats from 2-year highs as Trump’s ‘shock-absorbing’ trade policy looks ‘more measured’
The U.S. dollar (DX=F, DX-Y.NYB) traded lower on Tuesday as investors weighed President Trump’s latest tariff speech.
On Monday, the dollar index suffered its biggest decline since November 2023, retreating from near two-year highs after the president refrained from enacting broad tariffs on his first day in office.
The move surprised investors, as the emergency order allows for immediate tariff increases as opposed to the alternative investigation process, which can take longer to complete. Rather, Trump He issued a note. On Monday, he directed federal agencies to review U.S. trade policy, which could eventually lead to chilling tariffs on various trading partners.
After Monday, the president said tariffs on Mexico and Canada could come as soon as Feb. 1, initially sending the dollar off its lows. The fund recovered about half of its losses before wiping out those gains.
“The dollar is now incredibly sensitive to the rate outlook,” Kyle Chapman, FX market analyst at Ballinger Group, wrote in an email on Monday. “The new administration is already setting the tone, suggesting that Trump’s promised fast, shock, and shock trade policy may weigh more than the market expects.”
Chapman said the lack of one-day blanket rates “is the biggest indication that we’re going to be top dollar yet, even though I haven’t gotten my hopes up yet.”
Mohamed El-Erian, chief economic adviser at Allianz, told Yahoo Finance’s Morning Brief program that the dollar’s gains and losses indicate a new normal for the market.
“The message is that this is not a one-day event,” he said, adding that there are both upside and downside risks. “This is something that will stay with us.”
In the meantime, Morgan Stanley strategist Michael Zezas and economist Michael Gapen said in a note on Tuesday that Trump’s back-and-forth “reminds us that vigilance is necessary as the US policy path can evolve rapidly.” The group is of the view that no policy adjustments will be heard until the middle of the year.
The greenback’s price action has largely been driven by two main factors: the election of Trump and the Republican election, along with a recalibration of future Fed easing in light of strong economic data.
After hitting a low in September, the U.S. dollar index, which measures the dollar’s value against six foreign currencies (the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc), has risen nearly 10 percent. . It is up about 5 percent since the election.
