Stock market today: Dow gains 500 points, stocks close near records as Trump holds off on tariffs

The US dollar (DX=F, DX-Y.NYB) has been volatile since Donald Trump’s inauguration, retreating from near two-year highs as the president failed to enact broad-based tariffs on his first day in office.

The move surprised investors as an emergency order would have allowed immediate tariff increases in contrast to the alternative process of investigations, which is likely to take longer to complete.

Still, the dollar regained about half of its losses after the president later said tariffs on Mexico and Canada could be imposed by Feb. 1. He also issued a memorandum directing federal agencies to evaluate US trade policy, which could eventually lead to blanket tariffs across a variety of trading partners.

Mohamed El-Erian, chief economic adviser at Allianz, told Yahoo Finance’s Morning Brief program that the dollar’s gains and losses signal a new normal for markets.

“The message is this is not a one-day event,” he said, noting both upside and downside risks exist. “This is something that’s going to remain with us.”

To that point, Morgan Stanley strategist Michael Zezas and economist Michael Gapen said in a note on Tuesday that Trump’s back-and-forth rhetoric “reminds us that vigilance is warranted as the US policy path could evolve quickly.” The team maintained its stance that any policy adjustments likely won’t be felt until the back half of the year.

The greenback’s recent price action has largely been driven by two main catalysts: Trump’s election and the subsequent Republican sweep, along with the recalibration of future Fed easing in the face of strong economic data.

After hitting a September low, the US Dollar Index (DX-Y.NYB), which measures the dollar’s value relative to a basket of six foreign currencies (the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc), has rallied nearly 10%. Since the election, it has climbed by about 5%.