The US Dollar is holding near its one-month high, supported by pullbacks in other G10 currencies. However, uncertainty surrounding US trade policy, following a Supreme Court ruling and President Trump’s subsequent announcement of increased global tariff rates, is causing some struggles for the dollar. The market is also weighing the implications of a potentially smaller Fed balance sheet under incoming Fed Chair Warsh.
- The dollar index held at 97.8, near its one-month high.
- President Trump raised fresh section 122 tariffs to 15% after the Supreme Court struck down previous tariffs.
- It is unclear whether the tariff measure will alter current trade deals.
- Congress is unlikely to extend the measures past this Q4.
- Slower wage growth in the UK pressured the pound sterling, and declines in gauges of underlying inflation weakened the Canadian dollar, aiding the dollar.
- The supply of dollars is potentially capped by incoming Fed Chair Warsh’s preference for a small Fed balance sheet.
The dollar’s stability is being tested by shifts in global trade policy and central bank leadership. While weakness in other major currencies provides some support, the impact of new tariffs and their potential ramifications on existing trade agreements create an environment of uncertainty. The outlook on monetary policy regarding the Fed balance sheet adds another layer of complexity. These factors will likely influence the dollar’s trajectory in the near term.