The US dollar index briefly rose above 109 before settling at 108.6 on Tuesday, as traders closely monitored developments in the escalating trade war.
Dollar dips after rise amid trade war uncertainty
The 10% US tariffs on Chinese imports took effect today, prompting an immediate response from Beijing, which imposed retaliatory tariffs on select US exports including oil, gas, coal, cars, and farm equipment, set to take effect on February 10th. However, markets remain cautiously optimistic as leaders from both countries are expected to discuss the situation in an upcoming phone call, raising hopes that further escalation could be avoided and tariffs might be reversed.
Trade war inflation threatens Fed's hand
Meanwhile, planned tariffs on Mexico and Canada were postponed for a month. The ongoing trade war is expected to exert additional inflationary pressures on the economy, potentially limiting the Federal Reserve’s ability to cut rates.
