The Euro dipped to a three-week low on Monday before bouncing back slightly, while the Dollar saw a modest rise after US President Donald Trump warned of a potential 30% tariff on imports from two major US trading partners starting 1 August.

Analysts noted that the TACO effect, short for “Trump Always Chickens Out,” is limiting larger shifts in the forex markets.

On Saturday, Trump announced the new tariffs in separate letters to European Commission President Ursula von der Leyen and Mexican President Claudia Sheinbaum, which he shared on his Truth Social account.

Both the European Union and Mexico criticised the tariffs as unjust and disruptive. The EU stated it would extend its suspension of retaliatory measures against US tariffs until early August, while continuing to push for a negotiated resolution, Reuters reports.

“If Trump actually manages to extract significant concessions from US trading partners by threatening them with tariffs, this could be seen as positive for the Dollar. This is especially true if the concessions involve trading partners lowering their tariffs on US products,” said Commerzbank analysts.

However, analysts also pointed out a potential drawback for the US Dollar, the heightened uncertainty facing American companies, which could be hit with new tariffs at any time, potentially dampening their investment appetite.

The currency market response to Trump’s latest tariff threats was mostly subdued. The Euro initially fell to a three-week low but later recovered some ground, last trading 0.1% lower at $1.168175.

In other currency moves, the British Pound slipped 0.1% to $1.3475, while the Japanese Yen edged slightly higher to 147.33 per Dollar. Meanwhile, the US Dollar gained 0.3% against the Mexican Peso, reaching 18.683.

Investors have become increasingly numb to Trump's repeated tariff threats, with his latest shake-up in global trade having minimal impact. US stocks continue to hit record highs, and the Dollar has seen only a modest uptick.

“It seems like financial markets have become insensitive to President Trump's tariff threats now, after so many of them in the past few months,” stated Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“Judging by the limited market reaction, markets might think that the latest threat from Trump is actually a manoeuvre to extract more concessions.”

In other currency movements, the Australian Dollar dipped 0.11% to $0.65665, while the New Zealand Dollar dropped 0.36% to $0.5988.

More notable action was seen in the crypto market, where Bitcoin surged to a new all-time high, crossing the $120,000 threshold as investors anticipated key policy breakthroughs for the sector this week.

The world’s largest cryptocurrency was last up 2.9%, trading at $122,549.70, while Ether rose 1.5% to $3,039.48.