**US Dollar Weakens as Traders Assess Tariff Policies: A Forex Market Update**

By Kevin Buckland and Stefano Rebaudo

The U.S. dollar found itself near a one-week low against key currencies on Tuesday, as traders pondered the implications of President-elect Donald Trump’s proposed tariffs, which appear to be less aggressive than initially anticipated.

On Monday, sentiment turned negative for the dollar following a Washington Post report suggesting that Trump’s aides were revisiting tariff plans. These plans might target only sectors deemed critical to U.S. national security, rather than implementing the broad-based tariffs that Trump had previously indicated. This led to a marked decline in the dollar’s value against the euro and British pound.

However, Trump rebutted the report through a post on his Truth Social platform, allowing the dollar to regain some ground. The U.S. dollar index, which measures the currency against six major rivals, dipped by 0.25% to 108.03 as of 0730 GMT, after hitting a low of 107.74—its weakest point since December 30, 2022.

After reaching a peak of 109.58 on January 2, driven by expectations of fiscal stimulus and tariffs boosting U.S. economic growth, the dollar’s trajectory is now under scrutiny. Market analysts note that Trump’s original plan for universal tariffs of 10-20% was always seen as unlikely in its stringent form. Chris Weston, head of research at Pepperstone, emphasized that the recent reporting from the Washington Post has reinforced this perception in the market.

“Trump’s priority is to maintain leverage and credibility in negotiations, making concessions on tariff aggressiveness less appealing at this stage,” Weston stated. Upcoming economic indicators, including the U.S. JOLTS job openings report and the December ISM Services index, will further influence currency movements.

In the eurozone, the euro rose by 0.16% to $1.0407, reaching a one-week high on Monday at $1.0437. Chris Turner, global head of markets at ING, observed that while Trump’s denial has limited the euro’s gains against the dollar, uncertainties surrounding the extent of the tariffs may lead to the dollar giving up more of its recent advantages. Turner maintains a forecast predicting a gradual decline for the euro-dollar exchange rate towards 1.02 throughout the year, particularly as the European Central Bank (ECB) is expected to implement rate cuts more rapidly than the Federal Reserve.

Traders are also closely monitoring eurozone inflation data, with forecasts suggesting a rise to 2.5% from 2.2% year-on-year. A hawkish market reaction to this data could eliminate any residual hopes for significant cuts in ECB rates in the near future, further impacting the euro’s performance against the dollar.

In the British currency market, sterling rose by 0.14% to $1.25395 and previously reached a high of $1.2550. Conversely, the dollar strengthened by 0.09% to 157.46 yen, following a rise to 158.425 yen, buoyed by climbing U.S. Treasury yields. Some analysts suggest that the recent selling pressure on the yen may stem from position adjustments among investors, with a forecast indicating the dollar could be positioned at 158 yen by the end of March.

Risk-sensitive assets also made gains, with the Australian dollar up 0.46% to $0.6275 and the New Zealand dollar climbing by 0.66% to $0.5681. Meanwhile, Bitcoin remained stable at around $101,781, maintaining its highest levels since December 19.

As forex traders navigate these market dynamics, it’s essential to stay informed on geopolitical developments and economic indicators that may affect currency valuations.