Dollar steady as markets digest new tariff moves

The US dollar index held steady around 97.8 on Monday, consolidating its recent gains as financial markets continued to digest escalating global trade tensions and evolving signals from Washington on economic and monetary policy.

The greenback’s resilience came amid heightened uncertainty following President Donald Trump’s announcement of a new 30% tariff on imports from the European Union and Mexico, effective August 1. The aggressive move added to a growing list of trade barriers implemented by the administration in recent weeks, further fueling concerns about a breakdown in global supply chains and trade relationships.

In the aftermath of the announcement, EU and Mexican officials signaled openness to continued negotiations, hoping to defuse tensions and potentially negotiate a reduced tariff rate before the August implementation deadline.

While the tone from Brussels and Mexico City remained diplomatic, both parties underscored that all options remain on the table, including reciprocal tariffs, if progress is not made. Reports also emerged that the EU is stepping up diplomatic coordination with other US trade partners, including Canada, Japan, and South Korea, suggesting that a multilateral response to US trade actions could be in the making. Such coordination would mark a significant shift from earlier bilateral attempts to address trade disputes and may increase pressure on Washington to reconsider its stance.

Despite the escalating rhetoric, the US dollar remained well bid, benefiting from safe-haven inflows, particularly as global equities wavered and bond yields remained range-bound. The greenback's strength also reflects expectations that the US economy remains relatively more insulated from near-term trade fallout compared to its export-reliant counterparts, at least in the short run. Additionally, tighter financial conditions and recent signs of resilience in the US labor market have reduced the likelihood of imminent Federal Reserve rate cuts, further supporting the dollar.

Investor caution was also heightened ahead of the release of a key US inflation report later this week, with the Consumer Price Index (CPI) expected to provide valuable clues about how businesses and consumers are absorbing the cost of tariffs. Many analysts believe that if the CPI reading shows a meaningful pickup—particularly in core components—market expectations around the timing and scale of future Fed policy moves could shift.

Conversely, a benign inflation reading may provide room for the Fed to stay on the sidelines or pivot more dovishly if economic headwinds intensify.

Adding to the broader policy uncertainty, White House economic adviser Kevin Hassett made headlines after stating that President Trump “can fire” Federal Reserve Chair Jerome Powell “if there’s cause,” renewing concerns about central bank independence and the politicization of monetary policy.

While other officials later downplayed the comment, it injected a fresh layer of volatility into markets already sensitive to changes in Fed leadership or perceived erosion of institutional credibility.

Looking ahead, the dollar’s direction will likely hinge on a mix of incoming economic data, trade negotiation headlines, and Fed communication, particularly as inflation trends and geopolitical developments feed into broader risk appetite. Market participants are also closely watching for signals from other central banks, especially the European Central Bank and Bank of Japan, where dovish bias persists, potentially reinforcing the relative appeal of US assets.

In summary, the dollar remains supported by relative macro strength, investor caution, and interest rate differentials, but the balance of risks is shifting. With geopolitical uncertainties, trade policy volatility, and central bank independence under scrutiny, currency markets could face elevated turbulence in the weeks ahead.