Trump’s erratic tariff announcements keep dollar on backfoot

The euro-dollar currency pair demonstrates a sideways trend near 1.1350 during European trading on Tuesday after a sharp run-up in the last few days. EURUSD consolidates as the US dollar gains a temporary cushion after remaining under pressure for over a week.

The DXY Dollar Index, which tracks the greenback’s value against six major currencies, finds ground near a fresh three-year low near 99.00, posted on Friday.

However, investors brace for more weakness in the dollar as the currency is losing its safe-haven status due to ever-shifting tariff headlines by US President Donald Trump since last week.

After declaring a 90-day pause in the execution of reciprocal tariffs on all of its trading partners, except China, Trump plans to announce a temporary suspension of automobile levies. This would buy time for domestic carmakers to set up manufacturing facilities at home.

Additionally, heightened fears of an economic slowdown due to Trump’s economic policies have also weighed on the dollar and have strengthened US Treasury yields.

Historically, yields on interest-bearing assets increase sharply as financial market participants add the risk premium in times of economic uncertainty. 10-year US Treasury yields have increased over 13% in the last six trading sessions.

Rising bond yields and escalated fears of an economic slowdown are expected to jeopardize the Federal Reserve’s monetary policy outlook.

On Monday, Fed Governor Christopher Waller warned that the “new tariff policy” is one of the “biggest shocks” to affect the US economy in decades.

Waller gave more weightage to brewing fears of an economic recession over accelerating inflation expectations and backed monetary policy easing. He anticipated that the “effects of tariffs in raising inflation” will be “short lived”.

EURUSD chart by TradingView