US Dollar Forecast: DXY Rises as Trump, Treasury Soften China Tariff Threats

U.S. Dollar Index Recovers on Trump Trade Comments, Thin Holiday Trading

The U.S. Dollar Index (DXY) is staging a modest rebound on Monday, up 0.48% at 99.323, recovering from Friday’s losses triggered by President Donald Trump’s aggressive tariff rhetoric. The recovery comes in a session marked by thin liquidity, as the U.S. bond market is closed for the Columbus Day holiday.

Traders are recalibrating risk exposure following Trump’s call for 100% tariffs on Chinese imports, a move that rattled global markets late last week. However, the dollar’s bounce suggests a shift in sentiment after Trump softened his tone over the weekend, signaling potential de-escalation.

On Truth Social, Trump described Chinese President Xi’s recent posture as a “bad moment,” adding, “The U.S.A. wants to help China, not hurt it.”

Tariff Tensions Ease as Trump, Treasury Signal Cooler Heads

Investor anxiety over trade was partially soothed by additional remarks from U.S. Treasury Secretary Scott Bessent, who said Monday he believed the tariff standoff could be resolved diplomatically. These comments have slowed the dollar’s gains but kept risk-sensitive currencies on the back foot.

The euro dropped 0.43% to $1.1568, pressured not only by dollar strength but also by political uncertainty in France. The reappointment of Roland Lescure as finance minister under newly confirmed Prime Minister Sebastien Lecornu failed to move European markets meaningfully.

Yen and Yuan Reflect Global Policy Tensions

Against the Japanese yen, the dollar rose 0.66% to 152.15, slightly off session highs. A public holiday in Japan dampened volumes, but political disruption remains in focus following the collapse of the ruling coalition, which has undermined leadership prospects for LDP figure Sanae Takaichi.

Meanwhile, China’s offshore yuan stabilized at 7.1375 after earlier touching 7.144, helped by stronger-than-expected export growth in September. Still, concerns remain that renewed tariff threats could reignite pressure on the Chinese economy and its currency.

Carry Trade Risks Re-Emerge with FX Volatility Back in Focus

Analysts warn that renewed FX volatility could disrupt carry trade strategies, as risk appetite remains fragile. MUFG’s Lee Hardman noted that neither the U.S. nor China can sustain heightened tariff regimes without economic fallout, raising the risk of abrupt FX repositioning, particularly in low-yield funding currencies like the yen and Swiss franc.

DXY Outlook: Resistance Looms Near 99.563 as Bulls Eye 100.257

Technically, the DXY is facing initial resistance at 99.563. A breakout above this level could open a path toward the August 1 high of 100.257. On the downside, support is seen at 98.714 (Fibonacci level), followed by 98.238 and the 50-day moving average at 98.011. Short-term momentum favors bulls, but geopolitical risks and carry trade unwinds could limit upside in the near term.

More Information in our Economic Calendar.