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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 sterling and the yen, was down about 0.6 per cent after dropping by as much as 1 per cent. The euro gained 0.75 per cent against the US currency.
The dollar index had rallied more than 7 per cent from the beginning of last month to Friday, a major beneficiary of a so-called Trump trade on expectations that the Republican’s policies of tariffs and tax cuts would drive inflation and put upward pressure on US interest rates.
But the choice of 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.
Earlier this month, Bessent told CNBC 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.
US stocks moved higher, with the blue-chip S&P 500 up 0.3 per cent.
The small-cap-heavy Russell 2000 index touched a new high before giving back some gains, finishing about 1.5 higher.
Thierry Wizman, global FX and interest rate strategist at Macquarie, said the president-elect’s pick of Bessent “seems to suggest that Trump is going to be using tariffs transactionally as opposed to . . . punitively”.
US Treasuries, which have sold off on the prospect of inflationary pressures, rebounded. The US 10-year yield fell 0.14 percentage points to 4.27 per cent as Treasuries had one of their best days this year. 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 was “talking about using the US dollar as a more strategic tool” to achieve its goals.
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.
Investors hope that hedge fund manager Bessent, who will be responsible for delivering Trump’s economic agenda, could also help to curb a widening fiscal deficit.
Trump backer Elon Musk had previously argued against the appointment of a candidate that he described as the “business-as-usual choice”.
In Europe, the Stoxx Europe 600 closed 0.1 per cent higher while the UK’s FTSE 100 rose 0.4 per cent. European stocks have underperformed US markets since the presidential election over fears that tariffs would hurt the region’s economy and its exporters.
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.
Bessent had “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”.
