Dollar little-changed amid escalating trade tensions

The dollar index traded just above the 102 mark on Friday, hovering near its weakest level in six months as investors weighed intensifying global trade tensions against a surprisingly robust U.S. employment report.

Dollar little-changed amid escalating trade tensions

Market sentiment remained cautious after China’s finance minister announced a sweeping 34% tariff on all U.S. imports, a direct response to President Trump’s identical levy introduced on Wednesday. The escalating tit-for-tat measures have injected a new level of uncertainty into global markets, undermining confidence in the dollar despite the strength of recent economic data. Growing concerns over the economic impact of the trade war—ranging from higher consumer prices and deteriorating business sentiment to the potential onset of a recession—have led to mounting speculation that the Federal Reserve may be forced to respond with more aggressive monetary easing. Rate futures now reflect a 50% probability of four 25 basis point cuts by the end of the year, up from three just days earlier. Traders are increasingly betting that the first cut could come as soon as the Fed’s June meeting, particularly if trade disruptions begin to materially weigh on consumption and investment. On the data front, however, the March jobs report painted a resilient picture of the labor market. The U.S. economy added 228,000 nonfarm payrolls, far exceeding expectations of 135,000 and sharply higher than the upwardly revised 117,000 gain in February. The unemployment rate held steady at 3.8%, while wage growth remained moderate, suggesting that inflation pressures may be contained despite tight labor conditions. Still, the dollar's subdued performance suggests that traders are focusing more on macro risks than fundamentals. A weaker greenback has broad implications across asset classes, particularly for emerging markets and commodities, which tend to benefit from dollar softness. As the week ends, investor attention turns to next week's CPI report and a series of scheduled speeches from Fed officials, which could provide further clues on the central bank’s evolving stance amid the growing storm clouds.