US dollar declines as traders assess tariff outlook

Reuters

2 days ago

TOKYO, June 2 (Reuters) - The U.S. dollar edged lower on Monday, giving back some of its gains from last week, as markets weighed the outlook for President Donald Trump's tariff policy and its potential to constrict growth and unleash inflation.
The greenback starts the week on the back foot after Trump said late on Friday that he plans to double duties on imported steel and aluminum to 50% from Wednesday.
The U.S. currency has been whipsawed for weeks by Trump's on-again-off-again trade war, falling when a flare up in tensions stokes worries of a potential U.S. recession.
The dollar witnessed weekly tumbles of 3% against major peers in the days after the April 2 "Liberation Day" tariffs and 1.9% two weeks ago, when Trump threatened 50% levies on Europe.
Last week, the greenback got a bit of respite, rising 0.3% after talks with the European Union got back on track and a U.S. trade court blocked the bulk of Trump's tariffs on the grounds that he overstepped his authority.
Although an appeals court reinstated the duties a day later as it considers the case, and Trump's administration said it had other avenues to implement the levies if it loses in court, many analysts said it shows there are still checks in place on the President's power.
The dollar dropped 0.3% to 143.57 yen as of 0023 GMT, giving back some of its more than 1% rally from last week.
The euro gained 0.2% to $1.1372, and sterling advanced 0.3% to $1.3489.
The Australian dollar added 0.3% to $0.6454.
The U.S. dollar index , which measures the currency against six major peers, eased 0.2% to 99.214.
The dollar has also been weighed down by fiscal worries in recent weeks, amid a broad "Sell America" theme that has seen dollar assets from stocks to Treasury bonds dropping.
Those concerns come into particular focus this week as the Senate starts considering Trump's sweeping tax cut and spending bill, which will add an estimated $3.8 trillion to the federal government's $36.2 trillion in debt over the next decade.
Many senators have already said the bill will need major revisions, and Trump said he welcomes changes. The fate of section 899 of the bill could be crucial, according to Barclays analysts.
"S899 would give the U.S. free rein to tax companies and investors from countries deemed to have 'unfair foreign taxes' (and) could be seen as a tax on the U.S. capital account at a time when investor nervousness towards U.S. assets has grown," they said in a research report.
"Actively reducing foreigners' total return on their U.S. investments would dent inflows and weigh on the dollar, all else equal," they added.
"While dollar sentiment/positioning remains close to extreme negativity, the path ahead is by no means clear cut."