By Harry Robertson

LONDON (Reuters) -The dollar slumped 1% on Monday after a report said President-elect Donald Trump was mulling tariffs that would only be applied to critical imports, potentially a relief for countries that were expecting broader levies.

The Washington Post reported that Trump’s aides were exploring plans that would apply tariffs to every country – but only on sectors seen as critical to national or economic security.

The was already trading lower but fell more than 1% to as low as 107.86 in the wake of the report, down from a more-than-two-year high of 109.54 on Thursday.

Expectations that Trump would apply sweeping tariffs that would hurt countries around the world have weighed on foreign currencies such as the euro and in recent months and helped send the dollar soaring.

The euro rallied 1.13% on Monday to $1.0433, its highest in a week. It slumped to a 25-month low of $1.0225 on Thursday.

“The initial market reaction highlights that investors are reviewing this with some relief,” said Lee Hardman, senior currency strategist at Japanese bank MUFG.

“Perhaps the initial phase of tariff hikes in Trump’s second term may prove to be less than the market had been fearing,” he said. “That has triggered a reversal in some of the dollar strength we have seen in recent weeks and months.”

China’s yuan also rallied, with the offshore currency up 0.5% at 7.325 per dollar.

The onshore currency closed at its lowest in 16 months at 7.315 in part because of concerns about how Trump’s policies might hurt the economy.

Sterling was up 0.95% at $1.2542, the Australian dollar climbed 1.13% to $0.6284 and the U.S. dollar fell 0.96% against its Canadian counterpart.

Many economists believe broad-based tariffs would stoke U.S. inflation, potentially limiting the amount the Federal Reserve can cut rates, keeping bond yields higher and supporting the dollar.

Investors also had their eye on Friday’s closely watched U.S. non-farm payrolls jobs report for December for further clarity on the health of the world’s largest economy.

A slew of Fed policymakers are due to speak this week and are likely to reiterate recent comments from their colleagues that the battle to tame inflation is not yet over.

(Reporting Harry Robertson in London; additional reporting by Rae Wee in Singapore; Editing by Ed Osmond and Bernadette Baum)

Monday saw the U.S. dollar maintaining its upward trajectory, continuing the trend from the holiday season and defying traditional seasonal patterns.

Despite a brief upswing in U.S. Treasuries at the end of December, the dollar’s strength persisted into the new year, with European currencies experiencing downward pressure.

As normal market conditions resume this week and foreign exchange liquidity increases, there might be a slight easing of the dollar’s momentum, according to analysts at ING.

Technical indicators suggest that the recent rally may be overstretched, but the upcoming inauguration of Donald Trump is likely to keep investors leaning towards the safety of dollar long positions.

Historically, January and February have been strong months for the dollar, which may further support its position.

The focus is expected to shift back to economic data this week. Following the hawkish stance of the December Federal Open Market Committee (FOMC) meeting, the threshold for data to negatively impact the dollar has been raised. Market pricing indicates a potential rate cut in March, with 12 basis points (bp) already factored in, 17bp for May, and 25bp for June.

Comments from FOMC members Mary Daly and Adriana Kugler, expressing concerns about inflation, have added to the hawkish narrative and could provide a bullish backdrop for the dollar if the Fed re-emphasizes its inflation mandate.

The U.S. will release December jobs data on Friday, with projections suggesting a payroll increase of 140,000 and an unemployment rate holding steady at 4.2%, aligning closely with consensus estimates. This anticipated outcome would align with the Federal Reserve’s expectations of a gradual cooling in the job market, which influenced its decision to project only two rate cuts in 2025.

This week will also feature the release of the JOLTS job openings, the ISM service index, and the minutes from the FOMC meeting.

Despite technical signs pointing towards a potential correction or slowdown in the dollar’s rally, buying interest on dips is expected to remain strong, ING said. The target of 110.0 for the Dollar Index (DXY) is still considered achievable in the coming weeks, reflecting the unchanged tactical stance on the currency from the previous week.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Investing.com — Canadian Prime Minister Justin Trudeau is facing growing calls from his party members to step down. This development comes ahead of a scheduled party meeting set to occur this week. Trudeau is expected to deliver a statement in Ottawa, the country’s capital, at 10:45 a.m. local time on Monday.

Trudeau, who has been in power for nearly ten years, reportedly spent the holiday break contemplating his future. Some local reports suggest he may consider resigning before the party caucus gathers on Wednesday. However, Trudeau’s spokespeople have not yet responded to requests for comments.

If Trudeau resigns, he would leave as one of Canada’s most unpopular political figures, potentially leaving his party in a weakened state and the country facing an uncertain economic future. This uncertainty is compounded by incoming U.S. President Donald Trump’s promise to impose a 25% tariff on Canadian imports.

The prime minister’s political standing has been shaky, especially in the wake of a voter backlash against progressive politics, economic decline, dissatisfaction with aggressive climate policies, and growing resistance to immigration. Trudeau’s hold on power was further destabilized last month when the New Democratic Party, which had been supporting his minority government, announced its withdrawal of support.

This announcement came shortly after the resignation of Finance Minister Chrystia Freeland, who stepped down due to disagreements with Trudeau’s spending proposals. Freeland, who also served as deputy prime minister, left the cabinet because she believed Trudeau was not taking adequate measures to prepare for a potential trade war with Washington.

Calls for Trudeau’s resignation have grown louder within his party as the Liberal Party’s poll numbers have fallen. The public blames Trudeau for rising costs and housing shortages, which have been exacerbated by more lenient immigration policies.

Public opinion polls conducted in late 2024 and early this year show Trudeau’s approval rating has dropped to around 20%, and the Liberal Party is trailing the Conservatives by more than 20 percentage points.

“With Trudeau’s pending resignation, it looks like a Conservative-led government is closer to being on the way in Canada, and we can now say with greater than 50% certitude that the Conservatives or a Conservative-led coalition will govern Canada in 2025,” Thierry Wizman, Global FX & Rates Strategist at Macquarie, said.

“That realization should help the CAD stand up; the might very well have already made a top — i.e., sooner than it otherwise would have — on a better structural growth outlook for Canada postelection.”

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.