The U.S. dollar fell against other major currencies on Monday, giving up some of the previous week's gains, as markets weighed the outlook for President Donald Trump's tariff policy and its potential to hurt growth and unleash inflation.

The U.S. currency started the week on the back foot after Trump said on Friday that he planned to double duties on imported steel and aluminum to 50% from Wednesday, and as Beijing hit back against accusations it violated an agreement on critical minerals shipments.

China's Commerce Ministry said on Monday the charges were "groundless," and promised to take unspecified forceful measures to safeguard its interests. Treasury Secretary Scott Bessent said on Sunday Trump and Chinese President Xi Jinping were likely to have a call soon, and "this will be ironed out."

The dollar dropped 0.9% to 142.75 yen as of 1154 GMT, nearly wiping out its more than 1% gain from last week.

The euro rose 0.56% to $1.1411 - its highest since late April. Later in the week, focus will be on the European Central Bank's interest rate decision and subsequent outlook.

Trump's latest tariff announcement did little damage to the currency of top steel exporter Canada, whose dollar hit its highest in nearly eight months against the U.S. dollar. It was up 0.25% at C$1.3706 .

The dollar index, which measures its performance against six other major currencies , eased 0.52% and at 98.835 was just shy of its April 22 low.

"U.S. protectionist trade policies have raised the risk the U.S. economy enters a period of stagflation which can further undermine the dollar," said Elias Haddad, senior markets strategist at Brown Brothers Harriman.

RECESSION WORRIES

The U.S. dollar has been whipsawed for weeks by Trump's on-again-off-again trade war, and investors have been questioning the currency's safe-haven status as a flare-up in tensions stokes worries of a potential U.S. recession.

The dollar index has lost about 5% since the April 2 "Liberation Day" tariff announcement and about 2% in the last two weeks, when Trump threatened 50% levies on Europe and then postponed them.

Last week, the dollar got a bit of respite, rising 0.3% after talks with the European Union got back on track and a U.S. trade court blocked the bulk of Trump's tariffs on the grounds that he overstepped his authority.

An appeals court reinstated the duties a day later, and Trump's administration said it had other avenues to implement them if it loses in court, but many analysts said it showed there were still checks in place on the president's power.

Goldman Sachs said it expected the 10% tariff floor for major trading partners to remain, including sector-wide tariffs.

Fiscal worries have also given rise to a broad "Sell America" theme that has seen dollar assets from stocks to Treasury bonds dropping in recent months.

Those concerns come into sharp focus this week as the Senate starts considering the administration's tax cut and spending bill, estimated to add $3.8 trillion to the federal government's $36.2 trillion in debt over the next decade.

The fate of section 899 of the bill could be crucial, according to Barclays analysts.

Source: Reuters