The US Dollar Index (DXY) clawed back from early losses on Monday, getting back to 99.10 after dropping in Asia. Markets were initially optimistic about President Trump’s announcement that he would delay a planned 50% tariff on European Union (EU) imports from June 1 to July 9, but this initial relief rally quickly dissipated even as markets were forced to focus on ongoing macroeconomic risks created by US fiscal policy.
Temporary Relief from Tariff Delay Wears Off
Starting in the European session the US Dollar had come under pressure following Trump’s decision to delay EU tariffs amid an initial risk-on mood shift. Donald Trump’s announcement was made after speaking with European Commission President Ursula von der Leyen, who signaled the EU’s readiness to move on trade talks aggressively.
US equities were higher in early trading, with European equities up more than 1%, however, the US Dollar regained its footing. Weaker sentiment dissipated quickly, demonstrating market dislike for the longer-term trade establishment and concerns about the fiscal health of the United States.
Trump’s Tax Bill and Debt Concerns Resurface
Investors are increasingly cautious as Trump’s new tax and spending bill heads to the Senate. The bill is expected to significantly raise the US fiscal deficit, prompting concerns about rising yields and broader economic impact. Traders fear that such policies could drive up the premium required for holding US government debt.
Meanwhile, CFTC data revealed that bearish speculative positions on the US Dollar declined to $12.4 billion from $16.5 billion last week, suggesting that some traders may be repositioning in anticipation of further volatility.
Volatility Ahead for the US Dollar Index
With US markets closed for Memorial Day, trading volume remained low, limiting further moves in the DXY. However, upcoming macroeconomic data will likely influence direction this week. The second estimate for Q1 US GDP is due Thursday, followed by April’s Personal Consumption Expenditure (PCE) data on Friday—both key metrics for the Federal Reserve’s rate outlook.
Technical analysis indicates that while the DXY has bounced back from lows, resistance near 100.22 and 100.80 could cap further gains. The Relative Strength Index (RSI) hovering near 40 also suggests limited momentum unless fresh bullish catalysts emerge.
Conclusion
The US Dollar Index’s brief dip and recovery on Monday underscore the fragility of current market sentiment. While a delay in EU tariffs brought momentary relief, deeper issues—such as Trump’s erratic fiscal policies, growing debt, and inflation concerns—continue to challenge investor confidence. As traders look ahead to key economic data, the DXY remains caught between technical resistance and fundamental uncertainty.
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