Dollar falls, euro and yuan extend jump after Trump’s comments on tariffs

The US dollar extended its slide after US President-elect Donald Trump said he would not yet impose US tariffs at his inauguration, which is scheduled for later in the session.

Trump will issue a sweeping trade memo on Monday that stops short of imposing new tariffs on his first day in office, the Wall Street Journal reported Monday.

Market participants had expected Trump to announce trade tariffs under an executive order. Such a move would have raised expectations of a massive campaign, rising inflation and a longer Federal Reserve policy rate.

Trading volume was thin as US markets were closed for the Martin Luther King Jr. Day holiday.

“Markets were pricing in some of the risks of an executive order on tariffs, which won’t happen,” said Francesco Paysole, forex strategist at ING, referring to Trump’s quote on tariffs.

The dollar index, which measures the US currency against six peers, was down 1.01% at 108.21. It hit a 26-month high of 110.17 last week.

Strategists at Goldman Sachs expect a further potential 5% dollar upside in their base-case over the next few months, but warned of near-term risks due to market expectations of swift action on tariffs.

Since November’s presidential election, the greenback has gained 4% as traders expect Trump’s policies to boost growth and inflation.

Investors’ focus was firmly fixed on the policies Trump would enact on his first day in office. At a rally on Sunday, Trump said he would impose stricter limits on immigration.

Some analysts had expected Trump to use the International Emergency Economic Powers Act (IEEPA).

The IEEPA is a federal law in the US that gives the President the power to regulate economic transactions in response to unusual and extraordinary threats.

Along with tariffs, immigration and tax cuts will be key issues under market scrutiny.

On the monetary front, “We will be watching to see if President Trump mentions fiscal stimulus,” said Sajay Rajdhyaksha, research analyst at Barclays.

The euro rose 1.2% to $1.0398. It hit a two-year low of $1.0177 last week as threats of tariffs weighed.

Meanwhile soft US inflation data and the prospect of multiple Federal Reserve rate cuts have recently boosted risk assets, including bitcoin, which hit a record high of $109,071.86 on Monday and was last up 4.2% at $107,120.

Trump has promised to be the “crypto president” and is expected to issue an executive order aimed at promoting wider adoption of digital assets.

Some analysts now fear that the US administration’s delay in implementing the measures could trigger a “sell the news” reaction, potentially hampering positive momentum.

The yen was last at 155.65 per dollar, up 0.42% as the BOJ is likely to raise its policy interest rate this week, barring market shocks when Trump takes office.

Markets will focus on cues for the rate outlook as money market pricing suggests an 80% chance of a rate hike of 25 basis-points and 50 bps by year-end.

China’s yuan rose to its highest level against the dollar since January 3 on Monday, boosted by a friendly call between Trump and Chinese President Xi Jinping on Friday and better-than-expected fourth-quarter economic data.

The offshore yuan hit 7.2777 per dollar, its highest since mid-December, up 0.86%.

It has outperformed most of its peers since the US elections, despite expectations of stronger US tariffs, as the People’s Bank of China continues efforts to maintain currency stability.

China’s central bank told Reuters late on Friday that it was confident it could keep the yuan exchange rate “basically stable” at a “reasonable and balanced” level.