Dollar Struggles As Tariff Uncertainty Weighs On Global Confidence

The U.S. dollar faced continued pressure on Tuesday, hovering near a three-year low against the euro and a six-month low against the yen, as market participants grappled with the fluctuating U.S. tariff landscape. Despite a modest recovery in Asian trading hours, following a tumultuous week for the greenback, investor sentiment remained shaky.

The dollar fell to 142.99 yen, maintaining proximity to its six-month low of 142.05 reached last Friday. Similarly, the euro traded at $1.136, just below last week’s three-year high of $1.1474. The dollar also saw minimal movement against the Swiss franc, which had seen the U.S. currency drop to a 10-year low last week. The dollar is currently down nearly 8% against the Swiss franc for the month, putting it on track for its largest monthly decline since December 2008.

Market participants are closely monitoring the volatile changes in U.S. tariff policies, which have added confusion and uncertainty to the financial landscape. Over the weekend, the U.S. removed tariffs on smartphones and other electronics imported from China, providing some short-term relief. However, President Donald Trump’s comments indicated that the tariff reprieve might be brief, continuing to keep investors on edge.

The ongoing back-and-forth over tariffs, including Trump’s decision to impose and later delay the majority of tariffs, has added to the uncertainty faced by global investors and policymakers alike.

Kieran Williams, head of Asia FX at InTouch Capital Markets, noted that the uncertainty surrounding U.S. tariff policies, coupled with eroding investor confidence, is causing a gradual but consistent rotation away from dollar assets. “The recent backpedaling on U.S. tariffs has eased some of the acute market anxiety, softening the dollar’s safe-haven appeal in the near term,” Williams explained.

U.S. Treasury yields, which had surged sharply last week, also softened, with the benchmark 10-year Treasury note easing 1.5 basis points to 4.348%. This followed a significant 13-basis-point drop in the previous session. The rise in yields last week had been the largest weekly increase in over 20 years, as analysts and investors questioned whether U.S. bonds could retain their status as the world’s safest assets.

“The volatility of last week was driven by deleveraging, liquidation, and a shift away from U.S. assets. This week, however, the tone is calmer, likely due to the shorter trading week for the holiday,” explained Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities. He further noted that dovish comments from Federal Reserve officials have helped set a more measured market sentiment, with some suggesting a shift away from inflation concerns.

Federal Reserve Governor Christopher Waller weighed in on the economic impact of the Trump administration’s tariff policies, stating that they represent a significant shock to the U.S. economy. This could potentially lead the Federal Reserve to lower interest rates to prevent a recession, even if inflation remains elevated. Traders are currently pricing in 86 basis points of rate cuts from the Federal Reserve for the remainder of the year, according to LSEG data.

The U.S. Dollar Index (DXY), which measures the dollar against six major currencies, stood at 99.641, not far from the three-year low it hit last week. The index is down more than 4% for the month, marking its largest monthly decline since November 2022.

Other currencies have shown some resilience, with the British pound reaching $1.3215, and the Australian dollar climbing 0.66% to $0.6369. The New Zealand dollar surged to its highest level in four and a half months, rising 0.88% to $0.5926.

In summary, the dollar’s struggles reflect ongoing uncertainty surrounding U.S. economic policy and global investor sentiment, with the currency facing downward pressure amid shifting tariffs and expectations of potential Fed rate cuts.