Dollar Drops as Trump Softens Tariff Stance; Stocks Rise

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The first full day of market trading under U.S. President Donald Trump's second term is set to start on a positive note on Tuesday, as Trump's more measured approach to tariffs boosts investor sentiment.

On Monday, Trump issued a broad trade memo, halting immediate tariff impositions on key trading partners, a stark contrast to his earlier threat to act on his first day in office. Instead, the U.S. will review its trade relationships with China, Canada, and Mexico before deciding on further steps.

While U.S. stock and bond markets were closed for Martin Luther King Jr. Day, the dollar slumped sharply in FX markets, reflecting investor relief that Trump seemed to be dialing back his aggressive trade rhetoric.

This decline marked a 1% drop in the dollar index, its largest fall since August. The dollar's dip was also influenced by hedge fund positioning, with the latest data showing that funds held a net long dollar position worth $35 billion, the highest in nine years.

The dollar had surged about 10% since September alongside rising U.S. Treasury yields, tightening financial conditions and impacting Asian and emerging markets.

A reversal of this trend is expected to provide some relief. U.S. stock futures indicated a 0.4% gain on Wall Street on Tuesday, while Asian markets rallied on Monday, with the MSCI Asia ex-Japan and Nikkei 225 indexes both up over 1%.

Global markets will remain sensitive to news from Washington, as the new administration begins announcing policies and executive orders, making this week potentially volatile. Crude oil prices dipped further, falling for a third consecutive day as traders awaited details on Trump's energy executive order and his plans to replenish strategic reserves.

Cryptocurrencies, however, performed well, with bitcoin surging to a new high just shy of $110,000, spurred on by the self-proclaimed "crypto President" taking office. On Monday, the Asian economic calendar was light, with only South Korea’s producer price inflation and Hong Kong’s consumer price inflation data being released. Market movements will largely be driven by headlines out of Washington, the uptick in global stocks, and the dollar's decline.

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.