US Dollar Index softens to below 98.50 on trade jitters

• The US Dollar Index trades on a negative note around 98.45 in Monday’s early European session. 

• Trump pushed for a minimum tariff of 15% to 20% in any deal with the EU. 

• The UoM Consumer Sentiment Index rose more than expected in July's flash estimate.

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, edges lower to near 98.45 during the early European session on Monday. Concerns over the economic impact of US President Donald Trump’s tariff policies, the US fiscal and debt outlook, and the Fed’s independence drag the USD lower against its rivals. 

Investors will closely monitor the headlines surrounding US tariff policies. The Financial Times reported last week that Trump was pushing tariffs of 15% to 20% on European Union (EU) products. Meanwhile, US Commerce Secretary Howard Lutnick said on Sunday he was confident the US could secure a trade deal with the EU, but said August 1 was a hard deadline for tariffs to kick in.

Furthermore, dovish remarks from the US Federal Reserve (Fed) officials might contribute to the DXY downside. Fed Governor Christopher Waller said that policymakers should cut interest rates in the July meeting to boost a job market that looks to be weakening. Waller further stated that the Fed shouldn't "wait until the labor market deteriorates before we cut the policy rate."

Analysts expect the Fed will maintain its current rates at the end of this month, with a chance standing at 94% for a hold and 6% for a 25 basis points (bps) rate cut.

On the other hand, the better-than-expected US economic data released on Friday might help limit the USD’s losses. The University of Michigan's (UoM) preliminary Consumer Sentiment Index climbed to 61.8 in July versus 60.7 prior. This reading came in above the market consensus of 61.5.

The US Housing Starts increased 4.6% to an annualized rate of 1.32 million homes in June, up from an almost 10% slide in May, according to government figures released Friday. This figure was stronger than the 1.263 million homes expected (revised from 1.256 million).