The U.S. dollar fell against major trading partners on Monday as forex traders exited positions, anticipating the economic impact of new reciprocal tariffs set to take effect on April 2. President Donald Trump announced the tariff measures on Sunday, intensifying concerns over a global trade war.
During early trading hours, investors moved away from the U.S. dollar due to mounting fears that protectionist policies would negatively affect the U.S. economy. Market analysts noted that Trump’s approach to protectionism has reached new levels, fueling expectations of rising global inflation and economic disruptions.
Market analysts predict a decline in demand for the U.S. dollar in the short to medium term, driven by concerns over trade restrictions. The U.S. president’s firm stance on protectionist measures is expected to hinder globalization and international trade. As a result, key global ratings agencies have begun cutting their 2025 growth forecasts due to escalating tariff disputes among leading economies.
The uncertainty has led to increased demand for FX options as traders hedge against potential volatility. Investors are bracing for the impact of the new tariff structure, which will impose reciprocal duties on U.S. trading partners.
Market Reactions and Currency Movements
The EUR/USD pair traded higher early Monday, with forex speculators betting against the dollar ahead of the key tariff implementation date. Recent data showed the euro stabilizing around $1.08, as investors assessed inflation figures and prepared for the forthcoming U.S. tariffs.
Meanwhile, the euro is on track for a 3.1% monthly gain, supported by broad dollar weakness and Germany’s approval of a major fiscal package. The Japanese yen also strengthened significantly against other G-10 and Asian currencies, reflecting worsening risk appetite ahead of the tariff changes.
Westpac Strategy Group noted in a report that the narrow trading ranges seen in G-10 currency pairs last week could give way to much larger moves in the coming days due to heightened event risks, particularly the “Liberation Day” tariffs set to take effect on Wednesday.
Japanese Finance Minister Katsunobu Kato emphasized the importance of close communication with U.S. Treasury Secretary Scott Bessent on foreign exchange matters. He stressed that ongoing dialogue would be crucial for maintaining market stability.
Earlier this month, Trump stated that he had warned the leaders of Japan and China against devaluing their currencies, arguing that such moves were unfair to the U.S. economy. Despite this, the yen has appreciated approximately 4% against the dollar so far this year.
Trump’s Tariff Strategy and Market Concerns
On Sunday, Trump confirmed that reciprocal tariffs would take effect on Wednesday, initially targeting all countries. However, last week, he suggested that these tariffs might be more selectively applied than previously anticipated.
Market analysts at Deutsche Bank raised questions about Trump’s tolerance for market and economic disruptions caused by his aggressive trade policies. While his administration appears determined to implement massive policy shifts, investors are watching closely to see how far he is willing to go before reconsidering his approach.
