President Donald Trump’s decision to delay proposed 50% tariffs on European Union shipments led to a rally in the euro and other risk-sensitive currencies, including the Australian dollar. This policy reversal, along with concerns over significant spending and tax-cut legislation, further weakened the U.S. dollar against various currencies, signaling investor unease.
Ray Attrill, head of FX research at National Australia Bank, noted the return of the “Sell America” narrative from April, suggesting markets have likely anticipated that U.S.-EU tariffs may not reach 50%. Consequently, the euro rose 0.55% to $1.1418, while the Australian dollar increased 0.58% to $0.6537 and the New Zealand dollar was up 0.75% to $0.6031. The U.S. dollar continued to decline, with its index falling 0.3% to 98.813 after last week’s 1.9% drop. It reached a monthly low of 142.23 yen and a 2.5-week low of 0.8193 against the Swiss franc.
This dollar weakness emerged amid improved market sentiment, prompted by Trump’s decision to postpone EU tariffs until July 9, following a request from European Commission President Ursula von der Leyen.
The quick retraction of Trump’s tariff threat – only two days after its initial imposition – demonstrated the rapid shifts possible in U.S. trade policy. However, it reassured investors that agreements can still be reached and calmed fears of a global downturn. Trump also indicated that his substantial spending and tax-cut proposal would likely undergo “significant” changes in the Senate, which may address some of the fiscal concerns of investors.
The Congressional Budget Office projects that the House’s version of the tax bill could add around $3.8 trillion to the existing $36.2 trillion federal debt over the next ten years. Chris Weston of Pepperstone remarked that the bill reflects a shift from fiscal conservatism to an “outright pro-growth policy stance” by Trump and Treasury Secretary Scott Bessent.
As a result, there is a growing consensus that the U.S. dollar is on track for a multi-year decline.