The US dollar retreats amid renewed trade uncertainty; the euro and British pound edge higher.

Investing.com - Monday, the US dollar declined due to renewed uncertainty caused by President Donald Trump’s trade tariffs policy, while the US and Iran are set to hold more nuclear negotiations.

As of 04:15 AM Eastern Time (17:15 Beijing Time), the dollar index, which tracks the performance of the US dollar against a basket of six major currencies, fell 0.3% to 97.487. Last week, the index recorded a weekly gain of about 1%, its strongest performance in over four months.

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Trade Uncertainty Presses Down on the Dollar

The Supreme Court ruled on Friday that Trump’s comprehensive tariffs exceeded his authority. The US president responded by criticizing the court and imposing a uniform 15% tariff on imported goods.

Analysts at ING noted in a report: "This means countries like China and Brazil may face lower tariff rates, but countries like the UK and Australia will lose the 10% tariff concessions they negotiated. “Undoubtedly, many countries are now re-evaluating their trade agreements with the US, with the EU being the most significant.”

Trump’s alternative tariffs are valid for 150 days, but it remains unclear whether the US will need to refund tariffs already paid by importers. The Supreme Court has not ruled on this issue.

This could lead to years of litigation and more confusion, while Trump seeks other ways to more permanently replace this series of global tariffs.

Beyond tariffs, markets are also watching US military buildup in the Middle East, as the US pressures Iran to abandon its nuclear weapons program. More talks between the US and Iran are expected later this week.

ING added: “The fact that the US did not launch a military strike on Iran over the weekend may be one factor behind the dollar’s decline, but trade uncertainty and its impact on the US economy are another.”

Euro Rises, European Confidence Strengthens

In Europe, EUR/USD rose 0.3% to 1.1811, benefiting from the dollar’s weakness related to trade.

ING stated: “One conclusion might be that the EU will not get a worse trade deal than the current agreement, and European exporters have already learned to adapt to this agreement.”

Meanwhile, confidence in the region’s economic outlook is rising. Data released on Friday showed that business activity in the Eurozone accelerated this month, surpassing expectations, with manufacturing returning to growth for the first time since October last year.

Germany’s Ifo Business Climate Index, released on Monday, further supported this trend, rising from 87.6 last month to 88.6 this month.

GBP/USD increased 0.2% to 1.3514, with the pound strengthening as investors focus on several events this week—Bank of England Governor Andrew Bailey testifying before the Treasury Committee tomorrow, and by-elections in the Gorton and Denton constituencies on Thursday.

ING noted: “A heavy defeat for the ruling Labour Party could reignite speculation about Labour leadership and once again weigh on the pound.”

Yen Slightly Up

In Asia, USD/JPY fell 0.3% to 154.63, with the yen benefiting from its safe-haven status amid cautious trading due to concerns over the global economic impact of US tariff hikes, though Japanese holidays limited trading activity.

USD/CNY remained roughly flat at 6.9087, as Chinese markets are closed for the Spring Festival holiday.

AUD/USD also remained flat at 0.7084, while NZD/USD rose 0.1% to 0.5982.

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