The US dollar index slipped to 102.2 on Thursday, marking its third consecutive session of losses and drawing closer to the six-month low touched just last week.
Dollar extends losses on Thursday
The pullback reflects a confluence of factors, most notably investor reaction to President Trump’s unexpected announcement of a 90-day suspension of reciprocal tariffs for the majority of US trade partners — a move aimed at easing tensions and creating space for renewed negotiations. However, the exemption notably excludes China, which remains subject to sharply elevated tariffs, including the recently increased 125% levy on imports, escalating a long-standing trade standoff between the two global economic powers.
While the initial news triggered a modest relief rally in risk assets, markets quickly turned their attention back to the deeper, more persistent consequences of the ongoing trade war. Investors are growing increasingly concerned about the impact of elevated tariffs on US consumption, manufacturing competitiveness, and inflationary pressures — all of which feed into expectations for slower growth and more cautious monetary policy. The dollar’s recent weakness reflects this broader reassessment of the economic landscape.
US maintains a baseline 10% tariff on most imports
Under current policy, the US maintains a baseline 10% tariff on most imports, including those from close allies such as the European Union. However, strategic exemptions remain in place for critical inputs like semiconductors, pharmaceuticals, copper, lumber, precious metals, energy products, and vital minerals used in clean technology and defense. Despite these carve-outs, key industrial sectors — particularly autos, steel, and aluminum — are still subject to a steep 25% tariff, adding to cost pressures for domestic manufacturers and raising questions about long-term supply chain sustainability.
Meanwhile, falling Treasury yields — particularly after a volatile week in the bond market — are placing additional downward pressure on the greenback. As interest rate differentials narrow, demand for the dollar as a yield play has waned, especially amid mounting expectations that the Federal Reserve may adopt a more dovish stance if economic conditions deteriorate further. In contrast, traditional safe-haven currencies like the Swiss franc and Japanese yen have strengthened, as investors seek alternatives perceived as more stable in times of geopolitical and financial uncertainty. This shift in sentiment underscores growing unease about the dollar’s role as a safe haven in an increasingly fragmented and trade-sensitive global economy.
