The U.S. Dollar Index rose to around 99.7 on Wednesday, building on gains from the previous session as stronger-than-expected U.S. economic data and easing geopolitical concerns buoyed sentiment toward the greenback.
Dollar extends gains on Wednesday morning
A sharp rebound in U.S. consumer confidence for May — climbing from near five-year lows — signaled resilience in household sentiment despite lingering inflation concerns, fueling optimism about the strength of domestic demand and reinforcing the dollar's appeal as a safe and relatively high-yielding asset.
Investor confidence was further lifted by President Donald Trump’s announcement to postpone a planned 50% tariff on European Union imports until July 9, allowing more time for diplomatic engagement. The delay helped reduce fears of a near-term escalation in transatlantic trade tensions, which had threatened to undermine global growth and spark retaliatory measures. The move also improved the overall risk environment, giving a boost to U.S. assets, including the dollar.
Across the Atlantic, European leaders responded by proactively reaching out to top CEOs and multinational firms, requesting detailed reports on their current and planned U.S. investments. The initiative appears aimed at strengthening the EU’s negotiating position in the upcoming trade talks with Washington, while also demonstrating a willingness to de-escalate tensions. However, the outreach also underscores Europe’s growing concerns about maintaining access to the lucrative U.S. market under a shifting trade policy landscape.
Monetary policy front
On the monetary policy front, the dollar drew additional support from remarks by Minneapolis Federal Reserve President Neel Kashkari, who reiterated that interest rates should remain steady until there is greater clarity on the inflationary impact of new trade tariffs. His comments suggest the Fed is in no rush to adjust policy, and that it prefers to adopt a wait-and-see approach as it monitors evolving trade dynamics and price trends. The market interpreted this stance as supportive of continued dollar strength, especially given the resilience of recent U.S. economic indicators.
Externally, the dollar was also buoyed by weakness in the Japanese yen. The yen depreciated sharply after reports emerged that Japanese authorities may intervene to stabilize their bond market, potentially by curbing the issuance of super-long-term government bonds. This followed a surge in yields on 30- and 40-year Japanese government debt, which raised concerns about market volatility and prompted speculation about possible changes to Japan’s ultra-loose fiscal and monetary strategy. The resulting divergence in monetary outlooks between the U.S. and Japan further enhanced the dollar’s relative attractiveness, particularly in currency carry trades.
Looking ahead, investors are focused on upcoming releases of U.S. PCE inflation data and the Federal Reserve’s meeting minutes for further clues on the central bank’s rate trajectory, which could influence the dollar’s near-term direction. With a complex backdrop of trade negotiations, inflation uncertainty, and diverging central bank policies globally, the greenback is likely to remain a key barometer for shifting investor sentiment.
