US Dollar Forecast: DXY Gains as Trump Delays EU Tariffs and Confidence Jumps

Dollar Index Climbs as Trade Tensions Ease

The U.S. Dollar Index (DXY) rose 0.48% on Tuesday, maintaining gains after a key consumer sentiment report and as investors reacted to recent tariff reprieves from the White House. The greenback was broadly firmer against major peers, with particular strength versus the yen, as risk sentiment improved and global bond markets responded to easing trade uncertainty.

Dollar strength was already evident ahead of the Conference Board’s consumer confidence release. Traders were positioning off the weekend’s announcement that President Trump would delay a planned 50% tariff on EU imports, originally set to begin June 1. The move, seen as a step toward trade stabilization, helped sustain bullish positioning in U.S. assets.

Yen Falls Sharply as Japanese Bond Yields Slump

USD/JPY surged 0.9% to 144.05 as Japan’s long-term yields dropped sharply. A Reuters report that the Ministry of Finance may reduce super-long bond issuance triggered the move, compounding recent concerns over debt sustainability in Japan. ING’s Francesco Pesole noted the yen remains highly sensitive to domestic yield dynamics, particularly on the long end.

Japan’s Finance Minister Kato and BOJ Governor Ueda attempted to calm markets, emphasizing fiscal vigilance and the need to monitor inflation. But with bond markets on edge, the yen remained under pressure, reinforcing dollar strength across G10 FX.

Consumer Confidence Surges on U.S.-China Trade Relief

The Conference Board’s Consumer Confidence Index jumped to 98.0 in May, a sharp rise from April’s 85.7 reading and well above the consensus estimate of 86.0. The 12.3-point increase was largely attributed to optimism following Trump’s May 12 decision to halt severe tariffs on China.

The upbeat data helped validate existing dollar strength, though the DXY showed little reaction post-release. Traders viewed the index move as confirmation of resilience in consumer outlook rather than a fresh catalyst.

Treasury Yields Dip Slightly as Fiscal Concerns Linger

Treasuries found some support Tuesday with the 10-year yield down 4 bps to 4.469%, and the 30-year slipping 6 bps to 4.978%. While trade optimism contributed to demand, fiscal risks remain prominent. Trump’s tax-cut bill—projected to add $3.8 trillion to the debt—faces Senate revision, following Moody’s recent U.S. credit rating downgrade.

The euro, which initially rallied on the tariff delay, fell 0.4% to $1.1346 as dollar buying resumed. Sterling eased 0.1% to $1.3545.

Market Forecast: Dollar Support Intact, Fed Signals and Fiscal Debates Now in Focus

The dollar remains well-supported by easing trade threats, subdued foreign yields, and a stronger U.S. consumer base. Attention now turns to Wednesday’s FOMC minutes and Friday’s core PCE data for rate outlook clarity. However, fiscal concerns—particularly debt expansion tied to tax legislation—could inject volatility into dollar and Treasury markets if investor confidence wavers.

More Information in our Economic Calendar.