Trump Imposes Tariffs, But Markets Are Hesitant About the Dollar — How Come?
The US Dollar Index (DXY) weakened and moved below the 97.50 level in Asian trading on Tuesday (8/7), after recording a surge of more than 1% in the previous session. The DXY had strengthened due to a surge in risk aversion following the announcement of new tariffs from the White House, but weakened again as markets began to consider the potential for a Federal Reserve interest rate cut amid increasing US fiscal pressures.
What caused it? President Donald Trump signed an executive order on Monday night that delayed the implementation of new tariffs until August 1, giving trading partner countries more time to respond. However, the list of countries subject to tariffs was significantly expanded, including Japan, South Korea, Malaysia, Indonesia, Bangladesh, and other ASEAN countries. Tariffs range from 25% to 40%, with the threat of an additional 10% for countries considered "pro-BRICS."
The US dollar also faced pressure from expectations of further interest rate cuts by the Fed, although strong US employment data had eased market concerns. On the other hand, Trump’s recent decision to sign a large fiscal stimulus package (“Big Beautiful Bill”) of tax cuts and increased government spending has raised concerns about the widening of the US budget deficit.
How will the market respond? Despite the increasing geopolitical risks and trade tensions, market participants are starting to be cautious in assessing the long-term strength of the dollar. With the DXY returning to the 97.30 range, the market is now waiting for further signals from the Fed and the White House on the direction of monetary and fiscal policy going forward. In the short term, the dollar may remain volatile as the market digests a mix of signals from the US economy and politics.
Source: (ayu-newsmaker)
