The US dollar edged higher on Monday as investors hoped for a recovery on the hopes that Trump might soften his rhetoric on the trade war with China. The euro and yen remained under pressure due to political developments in France and Japan.
The dollar index measures the dollar against six currencies; the latest value is up 0.2% at 99.2. Following last week’s sharp sell-off after Trump announced 100% tariffs on China, a recovery is underway.
Is Trump Softening His Stance?
Tim Kelleher, commenting on the “quite tense atmosphere,” notes that Trump is once again employing the “TACO” (sudden softening) tactic in his rhetoric. Trump, however, posted on Twitter-like Truth Social after the tariffs, “Don’t worry about China, everything will be alright!” He published the message.
US Treasury Secretary Scott Bessent also assessed this crisis environment as “easable”; these comments limited the rise in the dollar.
Developments in Euro, Yen and Yuan
- Euro is at $1.1589, down 0.2%. The announcement of the new cabinet in France did not have a significant impact on the markets. The Dollar/Yen exchange rate rose 0.57% to 152.03. The Japanese holiday reduced trading volume. The Offshore Yuan fell to 7.1416 against the Dollar. Strengthening China’s September export data helped the yuan stabilize.
Expectation of Volatile Trends and Carry Trade Risk
Analysts emphasize that market sentiment is still fragile and exchange rates will remain vulnerable to large fluctuations. MUFG strategist Lee Hardman notes that Trump’s comments signal a “softer path,” but this could increase volatility in the currency market in the short term. Carry trade effects are also on the agenda: Low-yielding currencies like the Japanese yen and Swiss franc are taking a harder hit as “funding” currencies for investments directed towards high-yielding currencies. On the other hand, the Australian dollar (AUD) rose 0.7% to $0.6517 as risk appetite increased, becoming the best-performing major currency. The British Pound (GBP) is also up 0.1%, trading at $1.3347.
