US Dollar Forecast: DXY Gains as Trump’s Tariff Threats Spark Safe-Haven Demand

Dollar Gains on Safe-Haven Demand as Trump Tariff Threats Roil Markets

The dollar edged higher on Friday as a fresh wave of tariff threats from former President Trump pushed investors toward safe-haven assets. The announcement of a 35% tariff on Canadian imports beginning August 1, alongside potential blanket tariffs of 15% to 20% on other countries, reignited global trade concerns and drove modest but telling moves in the FX and bond markets.

On Friday, the U.S. Dollar Index (DXY) settled at 97.868

What’s Fueling Dollar Strength Despite Broader Weakness This Year?

The greenback firmed across the board, rising 0.8% against the yen to 147.40 and nudging 0.1% higher against the euro to $1.1691. The Canadian dollar slipped 0.1% to C$1.3668 after an initial knee-jerk drop of over 0.5% on the tariff news. While broader dollar sentiment remains bearish for the year, safe-haven buying and short-covering triggered a bounce.

Supporting the move were strong U.S. labor data and FOMC minutes that dialed back expectations for imminent rate cuts. Still, investors remain wary of lasting dollar strength due to the Fed’s cautious stance and long-term policy risk.

How Do Treasury Yields Reflect Shifting Risk Sentiment?

Bond yields moved higher across the curve. The 10-year yield jumped 7 basis points to 4.417%, and the 30-year rose 9 basis points to 4.954%. The short-end also ticked up, with the 2-year at 3.893%. These yield moves point to increased inflation expectations as Trump’s tariffs threaten to drive input costs higher and complicate monetary policy timing.

The stronger-than-expected labor data further supported the bond sell-off, as the Fed now faces a tougher environment to justify near-term rate cuts. With rate hike odds off the table, pricing is shifting to reflect prolonged holding.

Is the U.S. Dollar Index Setting Up for a Key Technical Reversal?

The U.S. Dollar Index (DXY) challenged a key short-term pivot at 97.899 on Friday but failed to break through decisively. This level is acting as resistance within a broader downtrend, and sellers are actively defending it. If they hold the line, the recent rebound could stall, leading to a pullback toward the July low of 96.377.

However, a clean breakout above 97.899 would mark a short-term shift in momentum and could trigger a sharper upside move. In that case, the next target comes in at the 50-day moving average, currently at 98.900. That level will be a key battleground for bulls, as it has capped rallies throughout the recent downtrend.

Until 97.899 is overtaken with conviction, the trend remains under pressure, and short-covering bounces are likely to face selling into strength.

Outlook: Tariff Volatility May Support Dollar Short Term, But Risks Remain

As traders digest Trump’s tariff strategy and brace for potential Canadian or EU retaliation, safe-haven demand could continue to support the dollar near-term.

However, with the DXY still trading below both its 50- and 200-day moving averages, any upside is likely corrective unless supported by fresh macro catalysts.

Expect continued volatility across US indices, FX pairs, and Treasuries as markets react to evolving trade risks.

More Information in our Economic Calendar.