Tariffs drama

The dollar index extended its slide on Monday, dropping nearly 1% to hover around 108, retreating from the two-year highs reached late last year. The pullback comes amid reports suggesting the incoming Trump administration may adopt a softer stance on tariffs. According to The Washington Post, Trump’s aides are reportedly revisiting his campaign rhetoric on sweeping tariffs, instead eyeing narrower measures targeting critical imports.

The proposed framework would focus on sectors deemed essential to national security, such as defense, medical supplies, and energy, marking a shift from the universal tariff approach outlined during the 2024 presidential campaign. “A sector-specific approach is more palatable and less disruptive,” a source familiar with the discussions told The Washington Post.

After an 8% surge in 2024, the dollar's largest annual gain in nearly a decade, its rally has lost momentum at the start of the year. Traders are now turning their attention to key U.S. labor market data, including the jobs report and JOLTS figures, to gauge the economy’s strength. Additionally, market participants will scrutinize speeches by Federal Reserve officials and minutes from the Fed’s December meeting for cues on monetary policy direction.

Sterling rallies from eight-month low

The British pound rebounded above $1.254 on Monday, recovering from the eight-month low it touched last week. The gains came as the dollar softened, reversing part of its recent rally driven by optimism around U.S. economic growth and potential tariff policies.

For the UK, January begins on a subdued note, with markets awaiting key economic indicators such as retail sales and employment data. Signs of stagnation in the UK economy and a slowdown in business activity during December have fueled expectations that the Bank of England may cut interest rates by around 55 basis points in 2025.

Trump’s tariff pivot targets critical imports

President-elect Donald Trump’s transition team appears to be narrowing the scope of his campaign promise to impose universal tariffs on all imports, instead focusing on critical sectors, The Washington Post reported Monday.

The shift would apply tariffs to key industries vital to national security, a move insiders suggest is less disruptive to supply chains and consumer prices. During the campaign, Trump floated a sweeping 10% to 20% tariff on imports to bolster domestic manufacturing and reduce trade deficits. However, the transition team has declined to comment on any changes to its economic plans.