The dollar strengthened against most major currencies on Monday after U.S. President Donald Trump announced plans to impose tariffs on steel and aluminum imports. The move, which is expected to fuel inflation and limit the Federal Reserve's ability to cut interest rates, spurred a renewed rush to the reserve currency.
The currencies of Norway, Canada, and Australia led the decline against the greenback. The euro fell 0.3%, and China's offshore yuan slipped 0.2% on the news.
Trump's announcement came after German Chancellor Olaf Scholz said the European Union was prepared to respond swiftly if the U.S. levied tariffs on European goods, highlighting the risks of an escalating trade war. China's retaliatory tariffs on some U.S. exports also took effect on Monday, with no sign of progress in negotiations between Beijing and Washington.
Analysts expect currencies from countries targeted by Trump's tariffs to weaken against the dollar to help compensate for the taxes and maintain export competitiveness. The tariffs could also put upward pressure on U.S. inflation, further limiting the Federal Reserve's ability to ease monetary policy.
Markets have already scaled back expectations for interest rate cuts this year, with the Federal Reserve now expected to cut rates by only 36 basis points, down from around 42 basis points previously.
The dollar's gains extended Friday's 0.3% advance, with the world's reserve currency climbing around 7% from its September low. The dollar has gained against every Group-of-10 peer in the past six months.