Dollar Trims Losses as Trump Responds to Tariff Rumours

Impact on GBP: GBP/USD holds steady near $1.2550 as US Dollar weakens

GBP/USD holds its bullish tone near $1.2550 this morning, supported by a broadly weaker US Dollar. However, further gains could face resistance amid mixed market sentiment ahead of key US data releases. The 4-hour chart shows the Relative Strength Index (RSI) rising above 50, while the pair closed its last candle above the 20-period Simple Moving Average (SMA), signaling recovery momentum.

After hitting a multi-month low near $1.2350 last Thursday, GBP/USD staged a technical correction and closed Friday in positive territory. The pair extended its recovery early Monday, benefiting from improved risk sentiment, and approached the $1.2500 mark.

Wall Street’s main indexes rebounded strongly on Friday, and early Monday saw US stock futures trading higher, keeping the US Dollar under pressure.

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Impact on EUR: EUR/USD edges higher near $1.0400 ahead of Eurozone inflation data

EUR/USD trades with a slight bullish bias around $1.0400 during European trading on Tuesday, supported by continued US Dollar weakness and profit-taking ahead of Eurozone inflation data. Traders also await US ISM Services PMI and Job Openings data for further direction.

On the downside, support levels are seen at $1.0370 and $1.0320. The pair started the week on a strong note, gaining on Monday as the US Dollar faced persistent selling pressure.

Eurostat is set to release December inflation data later today, with the Harmonized Index of Consumer Prices (HICP) expected to rise to 2.4% year-on-year from November’s 2.2%. A higher-than-expected reading could support the Euro.

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Impact on USD: Tarrif news sparks USD correction

The Dollar dipped after reports suggested President-elect Donald Trump was scaling back his plans for universal tariffs, only to recover some losses when Trump publicly denied the rumours.

"The roller coaster ride begins, and the USD seems to be a central focal point," said W. Brad Bechtel, Global Head of FX at Jefferies LLC, after news broke that Trump might limit tariffs to critical imports. The Washington Post reported discussions about targeting tariffs on sectors deemed vital to national or economic security, a shift from Trump's campaign promise of universal tariffs of 10-20% on all imports, with higher rates on Chinese goods.

Trump dismissed the report on Truth Social, calling it "incorrect" and claiming his tariff policy remains unchanged. Markets initially reacted by easing the Dollar's recent rally, offering relief to assets exposed to universal tariffs. Bob Savage, Head of Markets Strategy at BNY, noted, "A weaker USD gives global relief as it pushes back on intervention and rate policies supporting FX elsewhere."

The Dollar's rally post-Trump's election had been fueled by expectations that universal tariffs would drive U.S. inflation and weigh on global growth. However, Monday's developments raised doubts about this narrative, triggering a corrective pullback. The GBP/USD pair reflected this, rallying 1.0% to $1.2533 before Trump's rebuttal trimmed gains to $1.2500.

The tariff saga highlights Trump's strategy of leveraging uncertainty to stay on the offensive. While the final outcome remains unclear, the latest episode may ease recent Dollar strength, particularly as universal tariffs—a key driver of the late-2024 USD rally—face scrutiny.

Major Data: ISM Services PMI and?JOLTS Job Openings - 3pm

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