Dollar Holds Tight, Trump's Tariff Rhetoric Softens
The US dollar index (DXY) moved away from the $99 level on Wednesday (February 25th); it remained around 97.88 (around 97.85–97.99 intraday). Dollar sentiment remained relatively stable as market participants assessed that uncertainty from the White House—particularly regarding tariffs—was not enough to cause investors to massively exit dollar-denominated assets.
On the trade front, the US began imposing a temporary 10% global tariff under Section 122 after a Supreme Court ruling limited the previous tariff scheme. Although Trump had threatened a 15% rate, its implementation was still not finalized—and the tone of his State of the Union address was seen as not immediately "locking in" an imminent tariff escalation, thus slightly easing market concerns about aggressive tariff increases.
Meanwhile, monetary policy factors contributed to the dollar's bias. The shift in interest rate expectations occurred after stronger labor data led market participants to view the chances of a quick rate cut as diminishing—even the probability of a cut at the March meeting was valued at <5% by the swap/futures market. This "higher-for-longer" situation tends to support the dollar through the yield differential.
On the structural side, the discourse surrounding Kevin Warsh's push for a smaller Fed balance sheet has also attracted attention due to its potential to alter the dynamics of dollar liquidity. However, several analysts believe that materially shrinking the Fed's balance sheet will not be easy due to the current high need for reserves in the financial system.
Source: Newsmaker.id
