(Bloomberg) -- The US dollar pared a sharp decline against most major currencies on Monday after US President-elect Donald Trump denied a report that his tariff plans won’t be as broad as originally feared, with the currency volatility buffeting traders who have piled into long positions on the greenback to open the year.
Most Read from Bloomberg
The Bloomberg Dollar Spot Index ended the session down 0.6% after earlier falling more than 1%, the biggest intraday drop since 2023, following a Washington Post report that Trump aides were exploring a tariff plan that only covers critical imports. The euro rallied as much as 1.3% against the greenback, the common currency’s largest intraday gain in 14 months, while the pound also jumped as much as 1%.
The initial loss in the dollar was “an outsized reaction to an unverified report, but it does show the direction of travel,” said Kathleen Brooks, the director of research at XTB. “We’ve had a large buildup of dollar longs and they are at risk of a turnaround.”
Traders pared their currency bets and erased gains in bonds after Trump wrote on Truth Social that the Washington Post report was “wrong” in stating his tariff policies will be softened. The president-elect in a separate post to Truth Social said that United States Steel Corp., whose merger with Nippon Steel Corp. was blocked by President Joe Biden last week, would be a “much more profitable and valuable company” under tariffs.
Speculative traders in the final three months of 2024 boosted their bullish outlook on the dollar by the largest margin on record for a quarter, according to Commodity Futures Trading Commission data compiled by Bloomberg going back to 2003. After entering October with a net short position on the US currency, non-commercial traders held some $31.4 billion in long wagers as of Dec. 31, the most since April, according to the latest CFTC figures published Monday.
“The Trump ‘bark’ on tariffs may ultimately be worse than the ‘bite,’ but we expect that bark will get louder in coming weeks,” wrote Citigroup strategists including Daniel Tobon in a Monday note. “This time around, tariffs and trade negotiations are likely to start on day one, and therefore we expect investors will want to hold long USD for longer than they did in 2017.”
The dollar has benefited from expectations that Trump will levy the US’s major trading partners, hurting currencies including the yuan and euro. But a tariff program only covering key sectors such as the defense industrial supply chain would have a lesser impact on the global economy and US inflationary pressures than one covering a broader range of imports, meaning the dollar has room to weaken.