The dollar fell as Trump backed away from trade tariffs

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The U.S. dollar fell on Monday’s inauguration of Donald Trump as the incoming president’s officials signaled they would not initiate tariffs on some of America’s biggest trading partners.

The currency was down 1 percent against a basket of six peers in afternoon trading in London, on course for its biggest daily decline in more than five months.

The decline comes as senior officials in the incoming administration have indicated that Trump intends to review trade relations with Mexico, Canada and China but will stop short of imposing new tariffs.

Chris Turner, head of financial market research at ING, said: “The dollar has been rallying for four months, hoping that the new Trump administration will hit the ground running with tariffs.” “These early reports point to a more measured approach.”

Markets have been betting since early October that Trump’s trade tariff and tax cut proposals will boost inflation, prompting the Federal Reserve to keep interest rates on hold for longer.

The euro and sterling jumped 1.2 percent and 1.1 percent respectively – heading for their best dates since November and December 2023 respectively.

The Mexican peso rose 1.2 percent. The Canadian dollar rose 0.9 percent, putting it on course for its strongest day since May 2023.

“The dollar was overbought and it’s been weeks now. A correction was coming,” said Brad Bechtel, global head of FX at Jefferies.

Wall Street is closed on Monday. U.S. government bonds have sold off recently, partly because of concerns about the impact of rising tariffs on the U.S. economy.

“One thing the FX market is waiting for is more volatility,” said ING’s Turner. And we’re definitely seeing it.

“There is no immediate implementation of tariffs,” James Nelligan, strategist at JPMorgan, wrote on Monday. . . It will be a short-term disappointment against the dollar and she will be on her knees in sympathy.

However, he said there was still scope for “potentially onerous tariffs to come down the line” after reviews of trade deals by federal agencies.