The US Dollar dropped to a one-week low against its major counterparts on Wednesday, as investors became wary of President-elect Donald Trump's tariff promises and adjusted their portfolios ahead of the month’s end.
Market participants are also awaiting the release of the Personal Consumption Expenditures (PCE) price index later on Wednesday, before US markets close for the Thanksgiving holiday on Thursday.
Trump's Monday promises of hefty tariffs on Canada, Mexico, and China, the US's three largest trading partners, have left investors on edge, Reuters reports.
Markets are likely to stay nervous amid expectations of numerous announcements and potential policy reversals once Trump assumes office in late January.
Some analysts believe that inflation risks could prevent Trump from implementing further disruptive measures.
“We believe that Trump realises that his win was almost entirely due to 3i's — inflation, inequalities and immigration — with prices being key,” according to Viktor Shvets, global head of desk strategy at Macquarie Capital.
“Unless there is an improvement, the electorate's revenge could be severe, and there is not much time, as within 12 months, mid-terms will dominate,” he went on to add.
Shvets pointed out that Trump has chosen Scott Bessent as Treasury Secretary, a move expected to focus on controlling US deficits and using tariffs as a bargaining tool.
The dollar index, measuring the greenback against six major currencies, was down 0.35% at 106.53 at the time of writing, after reaching a low of 106.33, its weakest point since 20th November.
Whereas since 6th November, the day after the US election, the Dollar had risen by approximately 30%.
“The recent sharp Dollar appreciation largely decreases the asset values in Dollars outside US and hence increases the rebalancing need to sell the Dollar at the month-end,” stated Sheryl Dong, forex strategist at Barclays.
In Japan, the Yen outperformed, driven by increasing expectations of a rate hike in December and position adjustments. It strengthened by 0.9% against the Dollar, reaching 151.42, its highest level since 6th November.
“The fact that tariffs against China are now only to be increased by 10% and not by 60%, as was previously threatened, was therefore interpreted positively for the Yen,” said Carsten Fritsch, strategist at Commerzbank.
Furthermore, China's offshore Yuan gained 0.06%, reaching 7.2546 after hitting a low of 7.2730 the previous day, its weakest since the end of July.
Whilst the Euro rose 0.20% to $1.0510, and the British pound climbed 0.15% against the Dollar, reaching $1.2590.
The Euro reacted with relief as Trump refrained from mentioning trade with Europe. However, stocks of European car manufacturers plummeted on Tuesday, as they have significant production capacity in Mexico, with vehicles sold to the US market.