Dollar slips on renewed tariff concerns

The US dollar index slipped below 97 on Friday, halting a brief two-day rally as renewed concerns over trade policy and rising fiscal risks weighed on market sentiment. The pullback in the dollar came amid heightened geopolitical tensions and growing investor unease about the direction of US economic policy.

President Donald Trump announced plans to begin issuing formal letters related to trade matters, a procedural move that would allow the administration to unilaterally impose new tariff rates ahead of the July 9 negotiation deadline.

The announcement injected fresh uncertainty into global markets, as investors worried about the potential for escalated trade disputes, particularly with major partners like Japan, China, and the European Union. Trump's persistent criticism of trading partners—combined with past threats to impose tariffs of up to 35% on key imports—revived fears of a more fragmented global trade environment, which could dampen investment and slow global growth.

At the same time, the House of Representatives passed Trump's expansive tax cuts and spending bill, clearing the way for the legislation to move to the White House for final approval. The bill, which includes broad-based tax reductions and significant spending increases, is projected to expand the federal budget deficit by over $3 trillion over the next decade.

While proponents argue the package will stimulate growth and boost competitiveness, critics—including many in the financial markets—have warned that the combination of fiscal expansion and slowing revenue growth poses serious long-term risks to US debt sustainability. These concerns are starting to be reflected in bond markets and currency valuations, with the dollar under pressure amid worries about fiscal discipline and inflationary pressures.

Despite the macroeconomic uncertainty, there was a bright spot in the June jobs report, which showed the US economy added 147,000 jobs, beating expectations of 110,000 and improving slightly from May’s revised figure of 144,000. The stronger-than-expected employment data helped ease immediate recession fears, suggesting that the labor market remains resilient despite soft patches in consumer spending and manufacturing activity.

The jobs report also complicates the Federal Reserve’s policy outlook, as it reduces the urgency for near-term interest rate cuts. While Fed Chair Jerome Powell has emphasized data dependency in recent remarks, a sustained uptick in hiring and wage growth could delay or limit the scope of any monetary easing this year, particularly if inflation remains above target.

However, with trade policy uncertainties and fiscal concerns intensifying, the broader outlook for the dollar remains clouded. Investors are likely to remain cautious ahead of the upcoming trade negotiation deadline, further US economic data releases, and any signals from Fed officials that might hint at a shift in the central bank’s forward guidance.

In summary, the dollar's decline reflects a complex mix of solid domestic fundamentals counterbalanced by mounting structural risks, underscoring the currency’s sensitivity to both policy decisions and investor confidence in Washington’s economic management.