Dollar a touch higher, currency reaction muted as Trump's deals 30% tariff threat to EU and Mexico
Analysts pointed to the so-called TACO (Trump always chickens out) trade as keeping a cap on any bigger moves in forex markets.
Trump on Saturday announced the latest tariffs in separate letters to European Commission President Ursula von der Leyen and Mexican President Claudia Sheinbaum that were posted on his Truth Social media site.
Both the European Union and Mexico described the tariffs as unfair and disruptive, while the EU said it would extend its suspension of countermeasures to U.S. tariffs until early August and continue to press for a negotiated settlement.
"If Trump actually manages to extract significant concessions from U.S. trading partners by threatening them with tariffs, this could be seen as positive for the dollar. This is especially true if the concessions involve trading partners lowering their tariffs on U.S. products," wrote Commerzbank analysts in a morning note.
However they also flagged a downside to the U.S. dollar being the high uncertainty facing U.S. companies as they face potential tariffs at any time, and the impact on their willingness to invest.
Reaction in the currency market to Trump's latest tariff threats was largely muted, though the euro did slip to a roughly three-week low early in the session.
The single currency later regained some ground and last traded 0.1% lower at $1.168175.
Elsewhere, sterling was down 0.1% to $1.3475, while the Japanese yen rose marginally to 147.33 per dollar.
Against the Mexican peso, the dollar rose 0.3% to 18.683.
Investors have grown increasingly desensitized to Trump's slew of tariff threats, with his latest upheaval in the global trade landscape doing little to prevent U.S. stocks from scaling record highs and offering just a slight boost to the dollar.
"It seems like financial markets have become insensitive to President Trump's tariff threats now, after so many of them in the past few months," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. "Judging by the limited market reaction, markets might think that the latest threat from Trump is actually a manoeuvre to extract more concessions."
In other currencies, the Australian dollar fell 0.11% to $0.65665, while the New Zealand dollar slid 0.36% to $0.5988.
Outside of tariff news, Trump on Sunday said that it would be a "great thing" if Federal Reserve Chair Jerome Powell stepped down, again threatening to undermine the central bank's independence as he called for interest rates to be lowered.
Traders could get a better clue on the future path for U.S. rates when inflation data for June comes due on Tuesday, where expectations are for U.S. consumer prices to have picked up slightly last month.
Markets are currently pricing in just over 50 basis points worth of Fed easing by December.
In Asia, data on Monday showed China's exports regained momentum in June while imports rebounded, as exporters rushed out shipments to capitalize on a fragile tariff truce between Beijing and Washington ahead Trump's August deal deadline.
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5 minutes ago
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Americans could pay more for these items from Mexico and the EU if Trump makes good on his latest tariff threats
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Time Magazine
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17 minutes ago
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Trump tariffs don't cause inflation because of 'patriotism' buying: WH advisor
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