Dollar falls on report Trump team is mulling gradual tariffs

The US dollar’s dominance shows no signs of abating, setting the stage for a challenging year ahead for Asian currencies.

The dollar fell against almost every major currency after Bloomberg News reported that Donald Trump’s incoming economic team is considering gradual hikes in tariffs.

The Bloomberg Dollar Spot Index dropped as much as 0.4% in early Asia trading Tuesday, after a report showed Trump’s economic advisors are discussing a slow and steady approach to tariffs, rather than a large one-time increase. The move could slow inflationary pressure from tariffs, and potentially give more breathing room for the Federal Reserve to reduce interest rates.

It was the biggest drop in the dollar gauge since Jan. 6, when the greenback fell following a Washington Post story that claimed Trump was planning to pare back his tariff plans. The president-elect denied that story in a post on Truth Social.

“Dollar weakness can be sustained unless President Trump denies the reporting like he did in reaction to the report by the Washington Post,” said Carol Kong, a strategist at Commonwealth Bank of Australia.

Risk-sensitive currencies like the Australian and kiwi dollars jumped against the greenback, pointing to a sense of relief that a large tariff shock may be avoided. China’s offshore yuan, a prime selling target for traders betting on US tariffs, also advanced.

What Bloomberg Strategists Say...

The US dollar’s dominance shows no signs of abating, setting the stage for a challenging year ahead for Asian currencies.

Mary Nicola, Markets Live Strategist

The dollar’s drop underscores the key role tariffs play in swaying sentiment across the $7.5 trillion-a-day foreign-exchange market. But the move may prove temporary: Most Wall Street banks expect the greenback to strengthen, and blowout employment numbers last week have raised further questions about the pace of potential rate cuts.

Goldman Sachs Group Inc. sees potential for the dollar to climb 5% or more this year. Speculative traders including hedge funds and asset managers are more bullish on the greenback than they have been since 2019, according to Commodity Futures Trading Commission data compiled by Bloomberg for the week ended Jan. 7.

“You can’t chase this thing, as a denial will be coming soon,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. in New York said of the recent headlines. “Look through the noise and rest assured the dollar rally will continue on the US economic outperformance alone.”

Knee Jerk Reaction

The Philippine peso, the Thai baht and the South African rand led emerging market currencies higher on Tuesday. That pared their losses since the start of the year, as investors shunned riskier assets in the face of the incoming Trump administration.

“The tariff headlines are positive for Asia FX as it suggests a less draconian approach, but at the moment it’s still headlines,“ said Eddie Cheung, a senior emerging markets strategist at Credit Agricole CIB in Hong Kong. “While the knee jerk reaction is positive, I think markets will still want a bit more confirmation.”

The decline in the Bloomberg Dollar index on Tuesday followed five days of gains. The gauge is around 0.6% higher this year, following an 8% rise in 2024.