The start of a new week of forex trading brings to a halt the bullish upward wave that has propelled the US dollar over the past 2 months. Trading on the Dollar Index (USDIDX) and individual USD-linked currency pairs opened from a bearish gap down, triggered by the news reported over the weekend that Donald Trump had chosen Scott Bessent to head the US Treasury Department.
In his first interview after his election, Bessent said that his priority would be to implement Trump's various promises on tax cuts, the introduction of tariffs and spending cuts would also be a focus, as would maintaining the dollar's status as the world's reserve currency.
The market is focusing its attention today primarily on tax cuts. Bessent, who is seen as knowledgeable about the markets in that he himself is a fund manager at Key Square Group, is expected to advocate less spending and more gradual tariffs, according to political commentators, theoretically easing earlier concerns that exacerbate inflationary pressures. Lower pressure means lower forecasts for slow interest rate cuts, triggering declines in the world's reserve currency today.
The U.S. dollar against a basket of other currencies has broken above the upper end of the trading range seen since 2022, and despite today's near 0.5% decline, remains at its highest levels since October 2023. Source: xStation
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