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The US dollar experienced a decline on Monday following reports that president-elect Donald Trump’s administration is contemplating easing a campaign promise to impose extensive tariffs on imported goods.
The dollar index, which monitors the currency against a basket of six peers, initially dropped more than 1% after The Washington Post disclosed that potential tariffs might be limited to essential imports.
In November, Trump had issued a threat of imposing a 10 or 20% blanket duty on all trade partners.
Despite this, the greenback managed to reduce its losses to 0.6% after Trump refuted the report, labeling it as “fake news.”
The euro, which initially surged by as much as 1.2% to $1.043 after the report, saw some retracement to trade at $1.039 following the president-elect’s denial.
The pound, which was the top-performing G10 currency against the dollar last year, initially climbed to $1.255 before sliding to $1.251.
The news about potential tariff reductions triggered a “relief rally” in the euro against the dollar, with hopes that the region’s car manufacturers could be exempt from levies, as per Chris Turner, global head of markets at ING. He also mentioned that the tariffs might be less inflationary than initially anticipated.
Monday’s report instigated “some relief among investors that the initial tariffs won’t be as severe as feared,” resulting in a “sharp reversal of recent US dollar gains,” according to Lee Hardman, senior currency analyst at MUFG. He added that more targeted tariffs would help mitigate their disruptive impact.
US government bonds, which had been experiencing a sell-off in recent months due to concerns of increased inflation from broad tariffs, initially saw a slight recovery. The yield on the two-year US government bond, which correlates with rate expectations, decreased by 0.02 percentage points to 4.26% as the bond price rose, then stabilized after Trump’s denial.

The dollar’s weakness on Monday followed a robust rally for the world’s primary reserve currency that began in early October as the market anticipated a Trump victory. “The market had correctly anticipated a Trump victory,” stated Jane Foley, senior FX strategist at Rabobank.
Analysts and economists foresee that Trump’s pro-growth, potentially inflationary policies will restrain the frequency of interest rate cuts by the US Federal Reserve next year, thereby boosting demand for the dollar compared to other major currencies. This was further compounded by speculations that the Eurozone’s negative growth impact would prompt the European Central Bank to implement more aggressive rate cuts.
In mid-December, the Fed released economic projections indicating lesser interest rate decreases in 2025 than previously expected. Last week, a senior Fed official cautioned about the resurgence of US inflation after Trump assumes office.
Investors anticipate at least one interest rate cut by the US central bank this year, with a 60% probability of a second quarter-point cut.
Expectations for interest rate cuts by the ECB were slightly moderated, with just under four quarter-point cuts priced in for this year.