- The US dollar fell as much as 1% after a report on Donald Trump's tariff plans on Monday.
- The report suggested the administration might impose tariffs on critical imports rather than blanket duties.
- Trump denied the report, causing the dollar to recover some losses.
The US dollar fell on Monday after a report from The Washington Post said the incoming Trump administration would issue watered-down tariffs.
The article was followed by a rebuke from President-elect Donald Trump himself, who denied the report in a post on social media and caused the dollar to recover some losses.
The US dollar index, which measures the dollar against a basket of six rival currencies, fell as much as 1%, representing its biggest one-day decline since August. The Bloomberg Spot Dollar Index, which measures the greenback versus a basket of 10 rivals, posted its largest drop in over a year.
According to the Washington Post report, Trump's aides were reviewing plans to impose "universal" tariffs on every country, but only on imports that are seen as critical to national or economic security.
It was unclear what specific imports would be considered critical to national or economic security. Still, some areas of the economy that could be subject to the potential tariffs include the defense supply chain via industrial metals, medical supplies, and energy production, including batteries and rare earth elements.
The report was notable as it would significantly scale back Trump's threats to issue blanket tariffs of 10%-20% against some of America's closest allies, like Canada and Mexico.
"It looks as if officials are already preparing to water down the worst of Trump's campaign promises by narrowing the scope of the tariffs," Kyle Chapman, an analyst at the Ballinger Group, said.
But within three hours of the report, President-elect Donald Trump pushed back hard in a post to Truth Social, calling it "fake news."
"The story in the Washington Post, quoting so-called anonymous sources, which don't exist, incorrectly states that my tariff policy will be pared back. That is wrong," Trump said in the post.
The US dollar pared its losses to about 0.5% immediately following Trump's response to the report.
ING Economics said investors should get used to the whiplash driven by conflicting reports on Trump's agenda.
"If there is one lesson to take from today's events, it is the increased volatility likely to accompany the speculation and delivery of the new administration's agenda. As one trader succinctly put it: 'welcome to the age of Trump 2.0," ING Economics said.
The potential for broad-based Trump tariffs has investors laser-focused on the potential for inflation to take off again, which would limit the Federal Reserve's ability to cut interest rates.
The 10-year US Treasury yield initially declined by about three basis points following The Washington Post's report but has since reversed course and increased by three basis points after Trump's rebuttal.
James Knightley, an economist at ING Economics, said that if enacted, full-scale tariffs suggested by Trump during his election campaign could lead to as much as $833 billion in cost increases for US importers.
According to Knightley, about 60% of that potential cost increase would likely be absorbed by US consumers, while companies would absorb some of the higher costs via lower profit margins.
Overall, Knightley estimated that the tariffs could lift inflation by as much as 2.5 percentage points.
But the research firm added that while Trump loves "shaking up markets" with unpredictable policy announcements, "the final outcomes are often less dramatic than his initial announcements."