US Dollar Slides vs Pound, Euro as Trump Delays Tariffs Action

January 20, 2025 - Written by Tim Boyer

STORY LINK US Dollar Slides vs Pound, Euro as Trump Delays Tariffs Action

The US Dollar (USD) edged lower in European trading and then posted sharp losses against the Euro (EUR) and Pound Sterling (GBP) following reports that the Trump Administration will not move to impose immediate tariffs on key trade partners.

From lows close to 1.2160, the Pound to Dollar (GBP/USD) exchange rate surged to 10-day highs around 1.2320.

According to Scotiabank, “A positive week for the GBP this week will lift prospects for a push back towards 1.23/1.24.”

MUFG noted that the latest COT data released by the CFTC reported that speculative long-dollar positions had increased further to the highest level since September 2018.

According to the bank, “It clearly highlights that long USD positions have become a very crowded trade, leaving it vulnerable to a correction lower if market expectations for initial policy implementation under Trump disappoint.”

The Pound to Euro (GBP/EUR) exchange rate also rallied slightly to 1.1815 from 4-month lows close to 1.1800.

Domestically, the next significant data point will be the UK labour-market data on Tuesday.

The most important element is likely to be wages, with expectations that headline average earnings will increase 5.6% in the year to November from 5.2% previously, with underlying growth at 5.5%.

Stronger-than-expected data would cast some doubt on the potential for a February Bank of England rate cut, while weak data would trigger expectations of back-to-back rate cuts during the first quarter, which would hurt the Pound.

Immediate market attention was paid to the inauguration of Trump.

According to the Wall Street Journal, the Trump Administration will call for evaluating trade relationships with China, Canada and Mexico.

The paper also expects that Trump will lay out a vision on trade but, crucially, won’t impose new tariffs yet.

There is no doubt that Trump will issue a raft of executive orders on the first day of his Administration, but there is likely to be a focus on immigration and the Mexican border.

Reduced fears over an immediate imposition of tariffs boosted risk appetite and triggered a dollar sell-off.

Scotiabank commented; “The positive price action in the USD since the outcome of the US presidential election suggests to me that markets have already factored in a—very roughly—10-15% tariff regime being imposed on the US’ major trading partners, so somewhere in the middle of those two extremes which may mean profit-taking if its tariffs lite to start.”

MUFG is doubtful that there will be sustained dollar losses, especially given the underlying fundamental divergence in the global economies.

According to the bank; “In this context, we still doubt how sustainable any setback for the USD be with growth outside of the US set to remain weak and even more gradual and/or less broad-based tariffs should still ultimately be supportive for the USD.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Dollar Pound Forecasts Euro Dollar Forecasts