The US Dollar Index drops sharply on Friday, hitting a two-week low near 99.10, as markets digest a mix of renewed tariff threats from former President Donald Trump and growing concerns over the US fiscal outlook. The index fell more than 1.8% for the week, reversing prior gains and signaling a shift in short-term sentiment toward the US Dollar (USD).
With risk-off sentiment gaining ground, traders are watching closely for cues from upcoming economic data and Fed communications. Here's what’s driving the move.
1. Trump’s tariff threats weigh heavily on the USD
In a series of social media posts, Donald Trump announced his intention to impose a 50% tariff on all EU goods and floated a 25% levy on Apple products manufactured overseas. These comments surfaced just hours before high-level trade talks between Washington and Brussels, adding pressure on already fragile market confidence.
Trump’s rhetoric follows a temporary reduction of tariffs on EU goods from 20% to 10% last month, set to expire on July 8. The renewed threats come with the warning: “Our discussions with them are going nowhere,” suggesting a potential trade standoff is brewing. According to the Kiel Institute, the proposed measures could shrink EU exports to the US by as much as 20%.
Markets responded swiftly. US equities turned lower, Treasury yields fell, and the DXY (US Dollar Index) broke below its short-term support at 99.50.
The renewed tariff threats have triggered broad reactions beyond the US dollar, impacting global equity markets, bond yields, and risk sentiment worldwide. Investors are adjusting positions amid increased fears of a prolonged trade dispute, which could disrupt international supply chains and dampen global economic growth.
2. Fiscal jitters amplify downside pressure on USD
Beyond the trade headlines, investors are also digesting ongoing fiscal concerns in the United States. With no clear resolution in sight regarding budget negotiations, the possibility of future deficits and debt ceiling conflicts continues to undermine confidence in the Dollar.
Risk-sensitive currencies like the Euro and Yen strengthened, whereas the US Dollar Index continued to decline broadly. The retreat in DXY reflects broader skepticism about the US policy outlook and the strength of future economic recovery.
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3. US budget concerns and debt ceiling risks intensify market volatility
Unresolved fiscal challenges, including budget deficits and looming debt ceiling debates, continue to erode confidence in the US economic outlook. These fiscal uncertainties add another layer of risk that is weighing on the dollar, as investors seek safer assets or currencies less exposed to US political gridlock.
4. Key data and Fed signals ahead
Looking ahead, the economic calendar is packed with high-impact data that could shift sentiment again. Traders will monitor:
- FOMC Meeting Minutes
- Preliminary Q1 GDP
- Core PCE Price Index
- Personal income and spending
- Durable goods orders
- Goods trade balance
Any surprises, particularly in inflation or growth figures, could reinforce or reverse the current downtrend in the Dollar.
In parallel, speeches from Fed officials may offer further insight into the central bank’s reaction function amid trade headwinds and domestic uncertainty.
5. Technical view: DXY faces critical test
Technically, the DXY is testing a confluence support zone between 98.90 and 99.00. A break below this area may open the door for further downside toward 98.20. On the upside, resistance is seen near 99.70 and 100.00.
Momentum indicators on the 4-hour and daily charts suggest bearish continuation unless data surprises shift the landscape.
6. Conclusion: US Dollar Index drops as risks accumulate ahead of key week
The US Dollar Index drops in response to heightened trade tensions and unresolved fiscal risks, marking a volatile turn in sentiment. Given important data releases and upcoming central bank signals, traders are advised to stay vigilant and ready for increased market fluctuations.
To stay informed on DXY movements, USD trends, and actionable trade insights, follow our latest Breaking News at H2T Finance — where Forex traders find clarity in complexity.
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