Tariff tension and soft undercurrents keep the Greenback in check

If a stronger-than-expected NFP was meant to be a victory lap for the dollar, someone forgot to fire the starting gun. Despite a better-than-expected headline and a meaty 10–12bp pop in front-end Treasury yields, the greenback never got out of bed. Traders kicked the tires, but the market wouldn’t drive. And now we’re back where we started—slouching into the weekend with the dollar in stasis and FX desks prepping for another round of tariff roulette.

Usually, that kind of repricing—especially with yields this sticky—would be a tailwind for the dollar. But not this time. The problem isn’t the data. It’s the landmines ahead.

The FX market is bracing for what comes next out of Washington. Trump’s tariff pause expires July 9, and he’s already announced that "10 to 12" letters are being sent to trade partners detailing their new rates. If you’re on the wrong side of that envelope, you could be staring at tariffs as high as 60–70%. This isn’t a bluff—it’s part of the next leg of the White House’s economic doctrine: fiscal firepower paid for by external compression.

The FX options market gets it. EUR/USD vols remain elevated through the next three weeks —an implied warning that something could detonate soon. Traders are pricing political risk, not policy easing. And that’s keeping the dollar pinned despite what should’ve been a recovery setup.

Look back at April for the playbook. When tariffs last hit, the dollar wasn’t the safe haven—it was the casualty. CHF, EUR, and JPY led the charge, and already this week we’re seeing a similar dynamic: dollar rallies get faded, and haven currencies quietly pick up steam. Corporations and real money appear more comfortable selling the buck into strength than chasing upside.

Meanwhile, the yen has begun to stir. With the BoJ’s tightening cycle merely “paused,” not canceled, and real wage growth now driving consumer spending, domestic fundamentals are starting to argue for another rate hike. September pricing is laughably light—just 2bps—and any confirmation of a non-punitive US-Japan tariff deal could remove the last external hurdle to BoJ normalization. That’s the kind of sleeper story that could catch the market off guard.

The dollar was handed a clean macro win on Thursday, yet it couldn’t hold the gains. That says everything. Rate differentials still matter, but geopolitical tripwires and asymmetric trade threats are overshadowing them. The next move isn’t about economic momentum—it’s about who gets hit hardest when the tariff pen strikes.

Stay light, stay quick, and don’t chase strength in a market waiting for the next ambush.