Stefano Rebaudo

(Reuters) – The euro fell to a 6 1/2-month low against the dollar Monday (NASDAQ:) as investors worried about possible U.S. tariffs that would hurt the eurozone economy.

Meanwhile, a measure of its value relative to a basket of foreign currencies, it has slightly exceeded the highs seen immediately after the US presidential election, and markets are still waiting for clarity on future US policy.

The euro’s sensitivity to the threat of higher U.S. import tariffs was on display delayed Friday when media reported that President-elect Donald Trump was lining up Robert Lighthizer, seen as a trade hawk, to lead his trade policy, analysts said.

Sources familiar with the matter say Trump has not asked Lighthizer to return to the agency that oversees trade policy.

The common currency fell 0.6% to $1.0657, after hitting $1.0656, its lowest level since May 1. It fell 0.78% on Friday.

Politics remained in the spotlight after German Chancellor Olaf Scholz paved the way for early elections. However, next year there will be an increasing risk of policy changes in Germany, which could lead to a loosening of fiscal policy.

“The thesis for dollar bears right now is that it will take time for tariffs to be implemented and for the Fed to recalibrate to a less restrictive monetary policy,” said Chris Turner, head of forex strategy at ING.

“We disagree and believe this clean election result has the potential to lift consumer and business sentiment in the U.S. while impacting business sentiment in other parts of the world,” he added.

The index strengthened 0.45% to 105.44, after reaching 105.50, its highest level since July 3. It rose more than 1.5% to 105.44 last week after US presidential election results showed Trump winning.

MIXED VIEWS OF GREENBACK

Trump “will be less burdened by the political considerations of having to run for office again,” said Libby Cantrill, head of U.S. public policy at PIMCO.

“But what appear to be tight margins in Congress — potentially historically tight margins in the House — could be a check on Trump’s agenda, fiscal or otherwise,” she added.

Actions taken by the newly elected US president – including tariffs and tax cuts – should put upward pressure on inflation and bond yields, while limiting the Fed’s scope to ease policy and support the dollar.

Lee Hardman, senior currency analyst at MUFG, noted a media report suggesting earlier this year that Lighthizer was considering weakening the dollar.

“Higher tariffs could be used to force other countries to agree to revaluate their currencies against the U.S. dollar,” he said, recalling the 1985 Plaza Accords.

The Plaza Agreement was an agreement between five major economies to depreciate the dollar through coordinated interventions in the foreign exchange market.

The dollar gained 0.8% against the yen to 153.80, after slipping from last week’s peak of 154.70 on the risk of Japanese intervention. On November 6, it reached 154.68, the highest level since July.

A summary of views from the Bank of Japan’s October policy meeting showed that some members were unsure when to raise interest rates, also due to political uncertainty.

The interest rate outlook will be key for the dollar as all major central banks ease monetary policy.

The US bond market is closed on Monday for a public holiday, although stocks and futures are open.

Citi expects U.S. interest rates to remain near current levels for the foreseeable future as the market sits between expectations of significant policy changes in 2025 and a near-term data-driven monetary easing cycle.

Disappointment with China’s latest stimulus package sent the Australian and New Zealand dollars tumbling on Friday.

The U.S. dollar hit its highest level since early August at 7.2225, up 0.4% on Monday. It rose 0.70% on Friday after falling 0.75% the day before.

Data released over the weekend, underscoring the grim situation in China, showed consumer prices rose at their slowest pace in four months in October while producer price deflation deepened.

rose to a record high above $81,000 on Monday on expectations that cryptocurrencies will flourish in a favorable regulatory environment following Trump’s election as US president and pro-crypto congressional candidates.