Trump's team is brewing a "slimming" of tariffs, the US dollar is plunging, and there are changes in the prospect of a rate cut by the Federal Reserve!

The latest reports reveal that President-elect Donald Trump's team is brewing a tariff plan targeting specific key imported products. The plan covers all countries, but the specific industries or products affected have not been disclosed publicly. This strategy marks a significant reduction in the 10% to 20% universal tariff range advocated by Trump during his campaign, and has raised concerns among economists about potential consumer price increases and distortions in global trade patterns. Although the exact tariff targets have not been revealed, the market speculates that the Trump administration may focus on areas aimed at promoting the return of American industries, especially the defense industry supply chain, such as steel, iron, aluminum, copper, and key medical supplies such as syringes, needles, vials, and medical materials. In addition, according to insiders, energy materials such as batteries, rare earth minerals, and CECEP Solar Energy solar panels may also be subject to tariff imposition. This series of developments has quickly sparked a strong reaction in the financial markets. The dollar index plunged over 1% following the news release, falling to 107.86, significantly lower than the two-year high of 109.54 reached on Thursday, with spot dollar index dropping 0.9%, marking the biggest single-day decline since November. US stock index futures expanded their gains, with Nasdaq futures up over 2%. In recent months, expectations of Trump's potential large-scale tariff measures have put pressure on foreign currencies such as the euro and boosted the dollar significantly. However, Monday's market movements show the euro rising 1.13% against the dollar to a one-week high of 1.0433. Lee Hardman, senior FX strategist at MUFG, commented, "The initial market response shows some kind of relief among investors." He further pointed out, "Perhaps the scale of the tariff increase at the beginning of Trump's second term will be lower than the market's previous concerns, leading to a recent strong reversal for the dollar." Other currencies also showed positive momentum, with the pound rising 0.95% against the dollar to 1.2542, Aussie dollar up 1.13% to 0.6284, offshore Renminbi up 0.5% to 7.3215, and the US dollar falling 0.96% against the Canadian dollar. Economists generally believe that widespread tariff measures will stimulate US inflation, potentially limiting the Federal Reserve's flexibility to cut rates, maintaining bond yields at high levels, and supporting the dollar exchange rate. However, if the tariff plan is limited to key areas such as the defense industry supply chain, its impact on the global economy and US inflation pressure will be smaller compared to a plan that covers all imported products, indicating that there is still room for the dollar to depreciate. Valentin Marinov, G10 FX strategist at Credit Agricole CIB, pointed out that if confirmed, these plans "could promote risk sentiment and pressure the dollar," while the report "aligns with the Trump administration's cautious approach to avoid exacerbating inflation risks through radical, comprehensive tariff increases." It is worth noting that the so-called "universal tariff plan" Trump is considering would apply to all countries. Since Trump's victory in November, his threats of trade tariffs have been a hot topic among investors and economic policymakers. A comprehensive tariff plan could damage global economic growth and push up consumer prices, especially if met with retaliation from other jurisdictions. Meanwhile, investors are closely watching the US non-farm payroll report for December, which is set to be released on Friday, in order to gain further insight into the Fed's rate-cutting prospects. After the release of the tariff report, traders increased their bets on US monetary stimulus, expecting the Fed to cut rates by 42 basis points by 2025, higher than the previous forecast of 38 basis points. Jordan Rochester, macro strategist at Nomura, commented, "The latest reports reveal that a unified tariff plan may be a new government's consideration. But the good news is that they seem intent on avoiding imposing uniform tariffs on all imported goods to prevent a rapid surge in the Consumer Price Index (CPI)." This week, several Fed policymakers will deliver speeches, where they may reiterate recent statements by their colleagues that the battle against inflation has not yet been won. These policy dynamics and economic data releases will continue to provide important clues about the future economic direction for the market.