Dollar inches higher as markets shrug off Trump’s tariff threats to EU and Mexico
The U.S. dollar saw a slight uptick on Monday while the euro dipped to a three-week low before stabilizing, as financial markets reacted coolly to President Donald Trump's latest threat to impose 30% tariffs on European Union and Mexican imports starting August 1.
Despite the bold announcement, analysts described the overall currency reaction as muted, citing what they call the “TACO” effect, short for “Trump Always Chickens Out”, suggesting investors are no longer shocked by Trump's trade posturing, News.Az reports, citing Reuters.
More dramatic moves were seen in the crypto market, where Bitcoin surged past the $120,000 mark for the first time, climbing 2.9% to $122,549.70. Ether also gained 1.5%, trading at $3,039.48, as traders speculated on favorable regulatory developments expected this week.
In foreign exchange markets, the euro initially fell after Trump posted letters on his Truth Social platform addressed to EU Commission President Ursula von der Leyen and Mexican President Claudia Sheinbaum, informing them of the impending tariffs. However, it recovered some ground to trade 0.1% lower at $1.1682.
Other currency moves were similarly modest:
- The British pound fell 0.1% to $1.3475
- The Japanese yen edged up slightly to 147.33 per dollar
- The Mexican peso weakened 0.3% to 18.683 per dollar
- The Australian dollar declined 0.11% to $0.6566
- The New Zealand dollar dropped 0.36% to $0.5988
"Markets appear desensitized to Trump’s tariff threats," said Carol Kong, currency strategist at the Commonwealth Bank of Australia. “This seems like another negotiation tactic rather than an imminent economic shock.”
In response to the tariff threats, both the EU and Mexico criticized the move as unfair. The EU said it would extend its suspension of countermeasures until early August while pushing for a diplomatic resolution.
Commerzbank analysts noted that if Trump can use tariffs to secure better trade terms for the U.S., it could benefit the dollar — but they also warned that persistent uncertainty may discourage investment from U.S. firms.
Meanwhile, Trump renewed his criticism of Federal Reserve Chair Jerome Powell on Sunday, saying it would be “a great thing” if he stepped down, and once again called for interest rate cuts, raising concerns about the Fed’s independence.
Investors are now turning their attention to key U.S. inflation data due Tuesday, which is expected to show a slight rise in consumer prices for June. Markets are currently pricing in just over 50 basis points in potential Fed rate cuts by December.
In Asia, China's export data for June showed signs of a rebound as manufacturers pushed to ship goods ahead of Trump’s August tariff deadline, reflecting how fragile the current trade truce remains.
Despite the political noise, U.S. equity markets have remained resilient. Wall Street closed slightly lower Friday, but indices are still hovering near record highs.
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