US Dollar Steadies Near One-Week Low Amid Uncertainty Over Trump Tariffs

The U.S. dollar traded near a one-week low against major currencies on Tuesday as markets weighed the potential impact of President-elect Donald Trump 's tariff policies.

On Monday, the greenback fell against key currencies like the euro and sterling following a Washington Post report suggesting that Trump’s aides were considering applying tariffs selectively, targeting only industries deemed critical to U.S. national or economic security. This softer approach raised questions about whether Trump’s previously promised aggressive tariffs would come to fruition.

The Dollar rebounded a bit after Trump denied the report on his Truth Social platform, but it was still under pressure. The U.S. Dollar Index, which measures the currency against six major peers, edged up to 108.38, after dropping to a one-week low of 107.74 overnight.

The dollar index had surged earlier this year to a high of 109.58 on Jan. 2, its strongest since November 2022, driven by optimism surrounding Trump's promises of fiscal stimulus, deregulation, and higher tariffs aimed at boosting U.S. economic growth.

Chris Weston, head of research at Pepperstone, said the 10-20% universal tariffs proposed by Trump were always considered unlikely to be fully implemented. He said the Washington Post report had reinforced the belief that tariffs might be less aggressive than first thought, even though Trump has been trying to downplay the story.

The last thing Trump wants is to lose his leverage and credibility ahead of negotiations, even if the Washington Post report becomes a reality over time," Weston said.

The euro traded slightly weaker at $1.03795, having earlier hit its one-week peak at $1.0437 on Monday. Sterling was also a bit softer at $1.125085 after spiking to $1.2550 in the prior session.

The dollar advanced against the Japanese yen, gaining 0.3% to 158.23 yen, its highest level since July 17, as higher U.S. Treasury yields buoyed the currency.

There was also little movement in the Canadian dollar, seeing the U.S. dollar jump to C$1.4345 after retreating to C$1.42805 on Monday amid another adjustment following announcements by Canadian Prime Minister Justin Trudeau that he would stand down from his leadership post over the coming months.

"Market reactions suggest traders believe the Canadian economy may perform better without Trudeau at the helm," said Kyle Rodda, a senior financial market analyst at Capital.com.

The cryptocurrency market posted significant gains today with Bitcoin leading by strengthening 0.9%, reaching an intra-day peak at $102,560 that dates back to December 19.