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The U.S. dollar fell on Monday ahead of Donald Trump’s inauguration, after officials of the incoming president hinted that he would not immediately initiate trade tariffs against some of the U.S.’s biggest trading partners.
The currency was down 1 percent against a basket of six peers in afternoon trading in London, putting it on track for its biggest daily decline in more than five months.
The drop came as senior officials in the new administration told reporters that Trump intended to evaluate trade relations with Mexico, Canada and China, but signaled he would stop rushing to impose new tariffs.
“The dollar has strengthened for four months on the perception that the new Trump administration will take action on tariffs,” said Chris Turner, head of financial markets research at ING. “These early reports suggest a more measured approach.”
Markets have been betting since early October that Trump’s proposals for trade tariffs and tax cuts will boost inflation, forcing the Federal Reserve to keep interest rates higher for longer.
The euro and sterling jumped, adding 1.2 percent and 1.1 percent respectively — on track for their best days since November and December 2023, respectively.
The Mexican peso added 1.2 percent. The Canadian dollar rose 0.9 percent, putting it on course for its strongest day since May 2023.
“The dollar was heavily overbought and has been for weeks. A correction was coming,” said Brad Bechtel, global head of FX at Jefferies.
Wall Street is closed on Monday. US Treasuries have recently sold off, partly in anticipation of the inflationary impact of tariffs on the US economy.
“The one thing the foreign exchange market was expecting was more volatility,” ING’s Turner said. “And we certainly see that.”
James Nelligan, a strategist at JPMorgan, wrote on Monday that “no immediate implementation of tariffs . . . would be a short-term disappointment for the dollar and it is understandable that it succumbed to weaker sympathies.”
However, he added that there is still room for “potentially aggressive tariffs once federal agencies review the trade relationship.”
