|

US Dollar Index dives to two-week low on Trump’s tariff threats and fiscal jitters

  • DXY tumbles below 99.50, down 1.8% for the week amid broad risk-off sentiment.
  • Trump threatens 50% tariffs on EU goods, 25% on Apple products made overseas.
  • Markets eye upcoming FOMC Minutes, GDP, and core PCE data for policy signals.

The US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against a basket of six major currencies, slumps sharply on Friday, down over 1.8% for the week after posting a modest gain on Thursday to trade around 99.10 near a two-week low, ahead of the weekend. 

Although the US Dollar was already facing headwinds due to lingering trade tensions and growing concerns around the US fiscal outlook, the renewed weakness on Friday comes in response to US President Donald Trump’s aggressive trade rhetoric as he threatened to impose 50% tariffs on all goods sent to United States from the European Union (EU) and floated a 25% tariff ‘at least’ on Apple products manufactured abroad. The threats reignited fears of an escalating trade war and added to risk-off sentiment in global markets.

The threats in the form of social media posts came just hours before high-level trade talks were scheduled between Washington and Brussels. Trump had initially imposed a 20% tariff on most EU goods last month but temporarily halved the levy to 10% until July 8 to provide space for negotiations.

"Our discussions with them are going nowhere!" Trump wrote in a post on social media on Friday. He said the new tariffs would kick in on 1 June.

This aggressive stance is expected to decrease 20% of exports from the EU to the US, according to estimates by the Kiel Institute.

Looking ahead, market participants will focus on commentary from Fed officials, as well as the FOMC Meeting Minutes, preliminary Q1 GDP, core PCE price index, personal income and spending, durable goods orders, and the goods trade balance, all due next week, for fresh cues on the US economic outlook and monetary policy direction.

US Dollar PRICE Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.

USDEURGBPJPYCADAUDNZDCHF
USD-0.70%-0.84%-1.04%-0.98%-1.32%-1.48%-0.98%
EUR0.70%-0.14%-0.36%-0.28%-0.61%-0.77%-0.26%
GBP0.84%0.14%-0.19%-0.13%-0.44%-0.63%-0.12%
JPY1.04%0.36%0.19%0.08%-0.28%-0.44%0.08%
CAD0.98%0.28%0.13%-0.08%-0.36%-0.49%0.01%
AUD1.32%0.61%0.44%0.28%0.36%-0.15%0.36%
NZD1.48%0.77%0.63%0.44%0.49%0.15%0.51%
CHF0.98%0.26%0.12%-0.08%-0.01%-0.36%-0.51%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

Author

Vishal Chaturvedi

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

More from Vishal Chaturvedi
Share:

Editor's Picks

AUD/USD sits at three-week highs above 0.7000 on hawkish RBA-speak

AUD/USD holds a positive bias for the fourth straight day, trading above 0.7000 in the Asian session on Wednesday and at three-week highs. RBA Deputy Governor Andrew Hauser's hawkish remarks and inflation concerns underpin the pair. However, the upside appears capped as the US Dollar attracts some buyers amid looming US-Iran uncertainty.

USD/JPY remains confined in a familiar range below 158.50

USD/JPY sees some dip-buying in the Asian session on Wednesday, though it remains confined within a multi-week range near 158.50 as the uncertainty over the timing of the next BoJ rate hike keeps Japanese Yen bulls on the defensive. Meanwhile, hawkish Fed expectations, bolstered by inflation risks stemming from volatile oil prices, underpin the US Dollar. However, looming intervention fears could limit JPY losses and cap the currency pair.

Gold extends losing spree as US bond yields hold ground

Gold extends its losing streak for the fourth trading day on Wednesday, trading 0.2% lower to near $4,115 in the Asian session. The precious metal is under pressure as United States Treasury Yields on the back of significant gains in oil prices in past few weeks.

Bitcoin gains strength as Ethereum and Ripple selling eases

Top three cryptocurrencies, Bitcoin, Ethereum, and Ripple, are holding steady on Wednesday after a bullish close the previous day. The mild recovery hints at an extended rally as the prevailing bearish pressure eases. Bitcoin trades at $82,930 on Wednesday, holding a bullish near-term bias following a mild rebound the previous day.

US – Midterm update: Pre-election tail risk scenarios
With two weeks until the US midterm elections on 3 November, early voting has already opened in more than 40 states. Prediction markets are broadly unchanged since we published our Midterm update, 13 October. The prediction market Polymarket continues to see Democrats winning both chambers as the most likely outcome, with a 62.5% probability.
The US Dollar fell. Gold didn't rally. That tells you everything
Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.