The dollar rose sharply on Tuesday after falling for hours earlier as Donald Trump’s first day in the U.S. presidency brought mixed messages on tariffs and highlighted investors’ sensitivity to headlines on trade policy.
U.S. stock futures rose after bouncing back on Monday as traders digested Trump’s comments on economic policy and trade tariffs, while European stocks made small gains.
The Mexican peso and the Canadian dollar fell on Monday evening — reversing sharp gains from earlier in the day — after Trump said he was considering imposing 25% tariffs on neighboring countries as soon as Feb. 1.
This sent the Mexican peso down 1.3% against the US dollar while the Canadian dollar fell to a five-year low of $0.689.
About 11 hours ago, the U.S. dollar fell against its peers after a presidential memo, first reported by the Wall Street Journal, said the administration would investigate trade issues but would stop imposing tariffs on the first day.
The dollar index, which measures the currency against six currencies, rose 0.64% to 108.69 on Tuesday, despite failing to regain the 1.2% it lost on Monday in its biggest daily decline since November 2023.
Charo Chanana, chief investment strategist at Saxo, said: “The first few hours of the Trump administration confirmed that the policy environment will be dynamic again and markets must prepare for volatility.”
“Obviously, markets celebrated very early with the absence of tariff threats at the start of Trump’s inaugural address.”
The euro fell 0.62% to $1.0353, after rising 1.4% on Monday amid relief over tariff delays. Sterling fell 0.67% to $1.2248 after jumping 1.3% the previous day.
Stock futures rise amid dollar volatility
U.S. stock futures rose after bouncing back on Monday as traders digested Trump’s comments on economic policy and trade tariffs, while European stocks made small gains.
The Mexican peso and the Canadian dollar fell on Monday evening — reversing sharp gains from earlier in the day — after Trump said he was considering imposing 25% tariffs on neighboring countries as soon as Feb.
This sent the Mexican peso down 1.3% against the US dollar while the Canadian dollar fell to a five-year low of $0.689.
About 11 hours ago, the U.S. dollar fell against its peers after a presidential memo, first reported by the Wall Street Journal, said the administration would investigate trade issues but would stop imposing tariffs on the first day.
The dollar index, which measures the currency against six currencies, was up 0.64% at 108.69 on Tuesday, despite failing to regain the 1.2% it lost on Monday in its biggest daily decline since November 2023.
Charo Chanana, chief investment strategist at Saxo, said, “The first few hours of the Trump administration confirmed that the policy environment will be dynamic again and markets should prepare for volatility.”
The euro was last down 0.62% at $1.0353, after rising 1.4% on Monday amid relief over tariff delays. Sterling fell 0.67% to $1.2248 after jumping 1.3% the previous day.
Trump has also said he wants to reverse the U.S. trade deficit with the European Union, either with tariffs or more energy exports.
The dollar has risen about 5% since Trump’s victory in the Nov. 5 election, partly because the U.S. economy remained strong, and partly because investors braced for widespread tariffs that would have been imposed on the U.S.
Dollar Index Shifts After Trump’s Tariff Remarks
The US dollar (DXY), which tracks the value of the US dollar against six major currencies, took a heavy blow on Monday when news broke that the tariffs were not part of the executive orders signed by Donald Trump during his early hours as president. Markets mistakenly believed that the stance on tariffs had eased and that widespread delays would follow.
However, the surprise comment from US President Trump late Monday night led to a shift with reversals in all major pairs, including the US dollar. President Trump said the application of 25% tariffs on imports from Canada (CAD) and Mexico (MXN) is scheduled to begin at the beginning of February, with the Canadian dollar (CAD) and the Mexican peso depreciating. (MXN) as an immediate reaction. Overall, Tuesday’s reversals from Monday’s losses occur on almost all fronts and asset classes affected by these comments.
However, traders should be aware of some potholes in the road in case the US dollar index returns to 109.00 and above. With Tuesday’s ongoing recovery, some pivot rally levels could cause severe rejection, leading to an unexpected rebound, trapping the US dollar bulls and pushing them towards 107.00 and below.
If this recovery is to continue its growth, the pivot level to control is 109.29 (July 14, 2022, the highest level and an uptrend line). At the top, the next significant highs to be reached before advancing further remain at 110.79 (September 7, 2022, high). Once surpassed, it will be difficult to reach 113.91, a double high from October 2022.
In terms of falling further, the convergence between the October 3, 2023 high and the 55-day Simple Move Average (SMA) around 107.35 would act as a double safety feature to catch any falling knife.
Wolfe Research Report: Dollar Forecast and Interest Rates
Wolfe Research has released a report discussing key investment topics for 2025, highlighting the stronger US dollar and predicting lower long-term interest rates. The company attributed the dollar’s appreciation to various factors, including higher long-term interest rates, changing expectations about the Federal Reserve, and the impact of former President Donald Trump’s victory.
The report outlined the reasons why the company believes the dollar continues to strength. Wolfe Research initially identified the stronger US dollar as a primary investment theme at the start of the year. The company’s position remains unchanged, as the company expects the currency to gain more ground.
Wolfe Research also addressed the future of interest rates, especially the 10-year US bond yield, which has been primarily driven by a term premium since mid-September 2024. The company expects prices to gradually decline throughout 2025. This forecast is based on inflation approaching the Fed’s target of 2%, which could lead to further price cuts and lower term premiums after a significant increase due to concerns about the Trump administration’s policies.
U.S. stock futures rose after struggling in early trade, leaving NASDAQ futures up 0.56% and S&P 500 futures up 0.49%.
European automakers fell about 0.4 percent on Tuesday after Trump rescinded a 2021 executive order signed by his predecessor that sought to ensure that half of all new vehicles sold in the United States by 2030 are electric.
In light of the expected stronger dollar, Wolfe Research provided an examination of S&P 500 companies that generate a high percentage of their revenue from outside the United States. These companies may see weaker growth due to currency implications.
The report serves as a guide for investors who may consider the impact of currency strength and interest rate changes on their portfolios.