USD: US Dollar lower but volatile on Trump tariff uncertainty

NEW YORK: The US Dollar (USD) was lower on Monday in volatile trading after conflicting reports about how aggressive President-elect Donald Trump’s planned tariffs would be when he takes office.

The dollar dropped as much as 1.07% on the session against a basket of major currencies after the Washington Post reported that Trump’s aides were exploring plans that would apply tariffs to every country – but only on sectors seen as critical to national or economic security, easing concerns about harsher and wider levies.

But the dollar sharply pared declines after Trump denied the report in a post on Truth Social.

“The reality here is that Trump’s Truth Social views are going to drive FX volatility for a while and this morning’s reaction is indicative of the underlying dynamics,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“The market consensus is that Trump’s bark will be worse than his bite and any news that confirms that concept is fuel for rallying in risk assets and for a decline in the dollar and Treasury yields but the reality here is that the downside risks remain and there’s no clear endpoint for that.”

The dollar index , which measures the greenback against a basket of currencies, fell 0.59% to 108.32, with the euro up 0.68% at $1.0379.

The dollar index had reached a two-year high of 109.54 last week, as the resilient economy, the potential for higher inflation from tariffs and a slower pace of rate cuts from the Federal Reserve have supported the greenback.

The Chinese yuan strengthened 0.26% against the greenback to 7.341 per dollar. The dollar reached a 26-month high against the currency last week as China is seen as one of Trump’s major tariff targets.

Also helping the dollar pare declines were comments from Fed Governor Lisa Cook, who said the Fed can afford to be cautious with any further rate cuts given an economy that is on solid footing and inflation that has been stickier than expected.

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A host of Fed policymakers are scheduled to speak this week and are likely to reiterate recent comments from their colleagues that there remains a need to combat the stubborn levels of inflation.

The euro, which hit its lowest level since Nov. 2022 last week, was on track for its biggest daily percentage gain in a month, as annual German inflation rose more than forecast in December, according to preliminary data.

US economic data showed new orders for U.S.-manufactured goods fell in November while business spending on equipment appeared to have slowed in the fourth quarter.

Against the Japanese yen , the dollar firmed 0.2% to 157.58 while sterling strengthened 0.64% to $1.2499.

Investors will gauge a string of data on the U.S. labor market this week, culminating in Friday’s key government payrolls report.

The Canadian dollar strengthened 0.65% versus the greenback to 1.43 per dollar after CBC News reported Canadian Prime Minister Justin Trudeau will announce on Monday that he intends to step down as leader of the ruling Liberals.