The U.S. dollar weakened on Monday as investors grew more optimistic that Washington might take a softer stance on trade following its latest escalation against Beijing. The greenback’s slide came after Friday’s heavy market selloff, while political shifts in France and Japan weighed on the euro and yen.
The dollar index, which tracks the currency against a basket of six major peers, slipped 0.1% to 98.908. This followed a brief uptick after U.S. President Donald Trump announced 100% tariffs on Chinese imports, which sparked a wave of risk-off sentiment.
The sudden tariff threat reminded traders of Trump’s sweeping trade actions earlier in the year and reignited market jitters, dragging down both equities and cryptocurrencies.
“Certainly it’s pretty nervous out there,” said Tim Kelleher, head of institutional FX Sales at Commonwealth Bank in Auckland. “If you look at the U.S. and China stuff, it looks like Trump has done a bit of a TACO again and softened his tone,” he added, referring to a trading adage that “Trump always chickens out.”
Trump sought to calm investors over the weekend, writing on Truth Social: “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!”
Holiday-related thin trading could weigh on market activity, with parts of the U.S. observing Columbus Day/Indigenous Peoples’ Day. Japan’s markets were closed for Health and Sports Day, though U.S. stock exchanges remained open.
The euro was unchanged at $1.1622 in Asia after the French presidency unveiled Prime Minister Sebastien Lecornu’s new cabinet, keeping Roland Lescure as finance minister. Meanwhile, the dollar strengthened 0.5% to 151.89 yen as traders assessed the outlook for Liberal Democratic Party leader Sanae Takaichi following Komeito’s decision to leave the ruling coalition.
Cryptocurrency markets were volatile, with bitcoin last down 0.2% at $114,849.14. Gold hit a new record at $4,068 an ounce, up 1.2%. The offshore yuan gained 0.2% to 7.1357 per dollar after Chinese trade data showed stronger export growth in September.
“What China does in response to Trump’s latest tariff announcement will also affect how markets will respond in the coming days,” said Vasu Menon, managing director for investment strategy at OCBC in Singapore. “Both the U.S. and China know that they cannot afford to ratchet up tensions too much, especially after having accomplished so much in trade talks in recent months,” he added. “Ultimately, confrontation between the two superpowers could give way to reason, and the two leaders could prioritise their economies over their egos.”
The Australian dollar climbed 0.8% to $0.6525, the kiwi advanced 0.3% to $0.5735, and sterling edged up 0.1% to $1.3347 in early trading.
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