The U.S. dollar dropped by 1% on Monday after a report indicated that President-elect Donald Trump may impose tariffs only on critical imports, potentially easing concerns of widespread levies.
According to The Washington Post, Trump’s aides are exploring plans to target tariffs on sectors deemed vital to national or economic security, rather than applying them broadly across all countries.
Following the report, the U.S. dollar index, already trending lower, fell to 107.86, a sharp decline from Thursday’s two-year high of 109.54.
Recent expectations of sweeping tariffs under Trump’s leadership had weighed heavily on foreign currencies, such as the euro and China’s yuan, while boosting the dollar’s value.
The euro surged 1.13% on Monday to $1.0433, its highest in a week, recovering from Thursday’s 25-month low of $1.0225.
“The initial market reaction highlights that investors are reviewing this with some relief,” said Lee Hardman, senior currency strategist at MUFG.
“Perhaps the initial phase of tariff hikes in Trump’s second term may prove to be less than the market had been fearing,” Hardman added. “That has triggered a reversal in some of the dollar strength we have seen in recent weeks and months.”
China’s yuan also gained ground, with the offshore currency rising 0.5% to 7.325 per dollar.
The onshore yuan, however, had closed at a 16-month low of 7.315, partly due to concerns over Trump’s potential economic policies.
Sterling rose 0.95% to $1.2542, while the Australian dollar climbed 1.13% to $0.6284. The U.S. dollar also weakened by 0.96% against the Canadian dollar.
Economists caution that broad tariffs could stoke inflation in the U.S., limiting the Federal Reserve’s ability to cut rates, which could keep bond yields elevated and support the dollar.