The U.S. dollar softened on Tuesday, nearing a one-week low against major currencies, as markets speculated about the potential scope of President-elect Donald Trump’s proposed tariffs. While Trump’s administration has previously hinted at sweeping tariffs to protect U.S. interests, reports from The Washington Post suggested a more targeted approach focusing on sectors deemed critical for national security.

Key Highlights

Market Reactions to Tariff Speculation:

The dollar index dropped 0.25% to 108.03, approaching a low of 107.74, its weakest point since December 30.
This decline followed reports that Trump’s tariffs might not be as broad as initially feared.

Trump’s Denial:

Trump refuted these claims on his Truth Social platform, helping the dollar recover some losses after the initial dip.

Earlier Dollar Strength:

On January 2, the dollar index reached 109.58, its highest since November 2022. This surge was fueled by expectations of fiscal stimulus, deregulation, and tariff measures under Trump’s administration.

Analyst Commentary:

Chris Weston of Pepperstone highlighted that markets have always viewed Trump’s universal tariffs (10–20%) as improbable. The recent reports merely reinforced this sentiment.
Weston suggested Trump’s position might be strategic, aiming to maintain leverage in future negotiations.

Upcoming Data:

Investors are eyeing key U.S. economic indicators, including:

JOLTS job openings data.
ISM Services Index for December.

Broader Implications for Markets

Trade Policy Uncertainty: While targeted tariffs could be less disruptive than a blanket approach, uncertainty surrounding U.S. trade policy may weigh on investor sentiment.

Economic Indicators in Focus: Data on job openings and services activity will offer further insights into the U.S. economy’s health and influence currency movements.

Dollar Outlook:

A continued softening in the dollar could provide relief to emerging markets and exporters.
However, any signs of aggressive trade measures or stronger-than-expected economic data could reverse this trend.

For a detailed analysis of economic data and market trends, consider utilizing tools like the Economic Calendar API to track key events.