US Dollar Forecast: DXY Falls as Fresh U.S. Tariff Uncertainty Pressures Markets

Dollar Slips as Tariff Uncertainty Returns

On Wednesday, the U.S. Dollar Index is lower due to uncertainty surrounding new tariffs implemented by the Trump administration. Recently, the Supreme Court overruled the administration’s emergency tariff policies and President Trump quickly responded with new tariffs under Section 122 at a rate of 10%, potentially increasing to 15% within 150 days. The market doesn’t cope well with instability, and the dollar index is down 0.17% late in the session.

At 20:15 GMT, DXY is trading 97.686, down 0.196 or -0.20%.

Euro Firms, Yen Slips

The euro gained from the drop in the dollar, moving to $1.1814 before retreating. I think the move likely reflects relief from tariff-related stress rather than a fresh bullish catalyst from Europe. Additionally, the European Central Bank (ECB) has no plans to make any monetary policy changes in 2026, which gives traders greater confidence to buy EUR/USD without fear of a surprise policy adjustment.

The yen fell to 156.42 due to increased speculation around the government’s intent to pursue a reflation policy with new members for the BOJ Board. PM Takaichi expressed concerns over future rate hikes, which provided sellers with an additional excuse to continue pressing the yen after it recently bounced back from its January low of 159.45.

Fed on Hold, Iran Not a Factor Yet

Meanwhile, the outlook for the Fed is clearer. While inflation remains sticky, rates will remain on hold until at least June. A steady Fed allows for the dollar to stabilize without collapsing, but without more hawkish news, there has been little incentive to drive it higher either. Finally, I don’t see any evidence that Forex traders are playing the U.S.-Iranian tensions angle yet.

Yields Tick Higher but Enthusiasm Is Muted

In other news, yields on U.S. Treasuries rose slightly today (10-year yields: 4.05%, 2-year: 3.48%) following President Trump’s State of the Union address and its strong economy message. Rising yields will generally elevate the value of the U.S. dollar as long as they increase relative returns; however, the weaker than anticipated sale of $70 billion in 5-year Treasury notes has brought about a lack of enthusiasm for the rise in yields, keeping demand for the dollar suppressed.

The bottom line is the tariffs are likely to create confusion for investors over the short-run and this could cap gains. At the same time, U.S. rates will potentially limit selling. Without a clear direction from policymakers, DXY could become near-term rangebound.

Mixed Trend with Two Failed Breakouts

Technically, the trend is mixed. A potentially bullish formation has formed with the creation of the secondary higher bottom at 96.494 on the daily swing chart. However, the index did not take out the top at 97.973 decisively, having stalled at 98.078.

Additionally, buyers pierced the 50-day moving average at 97.929 recently with no follow-through move. Both failed breakouts suggest more short-covering than new buying is taking place. The bulls want to see the DXY close over the 50-day moving average and continue the move.

If the bears continue to defend against a 50-day MA breakout, then we could see a near-term pullback into a pivot zone at 97.286 to 97.100.

More Information in our Economic Calendar.