Donald Trump's 'Muslim ban' inspires drop in US dollar and global stock markets

Traders are fearful that Donald Trump's policies could prove destabilising

The dollar index fell around 0.3 per cent early on Monday (AFP)

The dollar and stocks around the world fell on Monday after President Donald Trump introduced highly contentions immigration curbs that attracted sharp criticism globally.

Mr Trump over the weekend signed two executive orders to ban refugees from entering the US and to rebuild the military.

One order begins the process, in his view, of building up the armed forces, while the other is ostensibly designed to prohibit radical terrorists from entering the country, but acts as a temporary, blanket ban for any refugee coming to the US.

The move sent jitters through global markets, with traders fearful that it would be destabilising and spark fresh bouts of volatility.

"While we continue to think a Trump victory likely means higher US growth in 2017 than we would have expected three or six months ago, we still think volatility will be a feature of the year," said Jim Reid, a senior strategist at Deutsche Bank. "It just seems that there are too many uncertainties, unknowns and major policy changes attached to a Trump presidency for it to be a smooth year," he said.

The FTSE 100 closed around 0.9 per cent lower on Monday. Earlier shares all across Asia ended the day down.

Japan's Nikkei finished the day around 0.5 per cent lower. Demand for the yen, which is considered a relatively safe asset to hold during times of market uncertainty, weighed on the Nikkei's major exporters.

In the US, stocks fell the most since the presidential election in November. The Dow Jones Industrial Average tumbled more than 200 points, retreating below 20,000 after closing at records last week. Meanwhile the S&P 500 dropped 1 per cent, with energy and financial leading decliners.

The dollar index fell around 0.3 per cent early on Monday, according to Reuters, and the dollar declined around 0.7 per cent against Japan’s yen.

On Tuesday, the US Federal Reserve's policy-setting committee will kick off a two-day meeting after which it is expected to decide to keep interest rates unchanged. However, investors will be watching closely for any clues of how policymakers view the risks to the economy and future path and timing of rate hikes.