The US dollar weakened and Treasuries rallied on Monday as the nomination of Scott Bessent as Treasury secretary eased investor fears over president-elect Donald Trump’s trade tariff plans.
The dollar index, which tracks a basket of currencies such as the yen and euro, was down as much as 0.7 per cent in Asia, before paring losses to trade down 0.6 per cent. The euro gained 0.7 per cent against the US currency.
The index had rallied more than 7 per cent from the beginning of last month to Friday, as a big beneficiary of a so-called Trump trade on expectations that his policies of tariffs and tax cuts would drive inflation and put upward pressure on US interest rates.
But the choice of Mr Bessent, who last month described sweeping tariffs as “maximalist” positions, is being taken by investors as a sign that the president-elect’s policies may be moderated.
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Earlier this month, Mr Bessent told CNBC that he would recommend that tariffs be “layered in gradually” to mitigate the risk of shocks in the market.
“Having at least one significant advocate around the cabinet table arguing against persistent trade taxes is a positive for markets,” said Paul Donovan, chief economist at UBS Global Wealth Management.
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US Treasuries, which have sold off on the prospect of inflationary pressures, rebounded. The US 10-year yield fell 0.07 percentage points to 4.34 per cent. Yields move inversely to prices.
“Everyone has been positioning for ‘America First’, but now I think you start to understand that this is not a one-way call,” said Hugh Gimber, global market strategist at JPMorgan Asset Management.
He added that the incoming administration is “talking about using the US dollar as a more strategic tool” to achieve its goals.
Mr Bessent’s nomination is a sign that Trump may not go “full on” on the most inflationary pieces of policy, including tariffs, said Vincent Chaigneau, head of research at Generali Asset Management.
[ Ireland’s €54bn exposure to Trump’s tariff planOpens in new window ]
Investors hope that hedge fund manager Mr Bessent, who will be responsible for delivering Mr Trump’s economic agenda, could also help to curb a widening fiscal deficit.
Mr Trump backer Elon Musk had previously argued against the appointment of a candidate that he described as the “business-as-usual choice”.
S&P 500 futures climbed 0.5 per cent. European markets opened higher, with the Stoxx Europe 600 rising 0.2 per cent, and the UK’s FTSE 100 up 0.3 per cent. European stocks have undershot US markets on tariff fears.
Major Asian trading partners of the US were buoyed by news of the appointment. Japan’s export-heavy Nikkei 225 index and South Korea’s Kospi both closed up 1.3 per cent.
Mr Bessent has “in the past indicated a possible more balanced approach to the implementation of trade tariffs”, said analysts at MUFG.
But they warned against reading too much into the nomination, saying the Treasury secretary was “not the person who will design the finer details of the strategy on trade tariff implementation”. – Copyright The Financial Times Limited 2024
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