US Dollar Index (DXY) climbs to levels nearing 97.00 amid higher demand for safety
- The Dollar rallies on risk aversion with Trump's tariffs threatening global trade.
- Uncertainty about the size and the deadline of US levies is keeping investors on edge.
- Strong US employment data and dwindling hopes of Fed cuts provide additional support to the US Dollar.
The US Dollar is one of the best performers among major currencies on Monday. Investors’ risk-averse sentiment amid growing concerns about global trade, as the US is likely to announce tariffs on imports today,
The US Dollar Index (DXY), which measures the value of the Greenback against a basket of the most traded currencies, has climbed to the upper range of the 96.00s, putting some distance from last week’s long-term lows, right below 96.00 and approaching a key resistance level, at 97.00.
US tariffs have boosted risk aversion
Trump said on the Weekend that he will send letters on Monday to countries that did not cut deals with the US that they will be facing the tariffs announced on April 2. The deadline, however, is unclear as some US administration spokespersons have mentioned August 1, in another probable moratorium from the initial July 9.
The habitual uncertainty surrounding most of the US Government’s initiatives, together with renewed concerns about tariffs’ negative impact on global growth, is hurting investors’ appetite for risk today, while the US Dollar picks up alongside US Treasury yields.
The US calendar is light this week, but the strong US Nonfarm Payrolls numbers seen last week dissipated concerns about the US economy and crushed hopes of Fed cuts in July. This is likely to provide additional impetus to the US Dollar, at least until the release of the minutes of the last Fed meeting, due next Wednesday, which might reflect some divergence within the committee.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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