More Bark Than Bite. Dow Futures Rise, Dollar Plummets on Report of No Tariffs on Day One

In electronic trading, futures on the Dow Jones Industrial Average climbed, and the U.S. dollar weakened on Monday following reports that President-elect Donald Trump does not plan to impose new tariffs on his first day in office.

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Dow futures (YM00) rose by as much as 305 points, while S&P 500 (ES00) and Nasdaq 100 (NQ00) futures also showed gains. This came after a report from The Wall Street Journal indicated Trump would sign a memorandum to examine trade policies but would hold off on implementing new tariffs.

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The U.S. stock market was closed in observance of the Martin Luther King Jr. holiday, yet market activity and speculation continued. During his campaign, Trump had promised to impose 25% tariffs on imports from Canada and Mexico, along with 10% tariffs on goods from China, on his first day in office. However, the decision to delay such measures alleviated immediate market concerns.

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The U.S. dollar experienced significant declines against multiple currencies. The dollar dropped against the Canadian dollar (USDCAD), falling from C$1.4477 to C$1.4283, and against the Mexican peso (USDMXN), declining to 20.5107 pesos from 20.7877 pesos. Similarly, the euro (EURUSD) surged against the dollar, climbing from $1.0427 to $1.2076. Meanwhile, the dollar weakened against the Japanese yen (USDJPY), slipping from 156.30 yen to 155.51 yen.

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According to currency analysts at Citigroup, led by Daniel Tobon, the news suggests Trump’s tariff policies may be less aggressive than initially feared, prompting them to exit a recommendation to short the euro against the dollar. Kathleen Brooks, research director at XTB, characterized the market reaction as a "relief rally." She noted that the news could have a positive impact on global stocks, particularly U.S. semiconductor companies, which depend heavily on Chinese imports and stand to benefit from reduced trade tensions.

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Kyle Chapman, an FX markets analyst at Ballinger Group, viewed the market moves as a signal that the dollar may have reached its peak. While he cautioned that the possibility of substantial tariffs remains over Trump’s four-year term, Chapman highlighted that the likelihood of a worst-case scenario involving sweeping tariffs has diminished. He also pointed out that the news reduces the chance of euro/dollar parity—a situation where the euro and dollar would be of equal value.

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The optimism extended to global markets. Germany’s DAX stock market index (DAX) rose 0.6%, setting a new record high. Automakers such as BMW (+3.48%), Daimler Truck (+2.76%), and Mercedes-Benz (+2.94%) led the gains. Similarly, Canada’s S&P/TSX 60 index (SPTSE) advanced by 0.5%.

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In summary, the market rally and currency movements reflected investor relief over the apparent softening of Trump’s trade stance. While there is still uncertainty about the long-term trajectory of his trade policies, the initial signals have reassured markets, suggesting that significant trade disruptions may not materialize as quickly as feared. This has spurred gains across multiple asset classes and geographies, with analysts interpreting the developments as a shift toward a less aggressive tariff policy.

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