US Dollar Forecast: Impact of Tariff Threats

Published: July 12, 2025

Author: James Hyerczyk

Overview

The US dollar has experienced a notable increase due to recent tariff threats from former President Trump, which have reignited concerns over global trade. The announcement of a 35% tariff on Canadian imports, effective August 1, along with potential tariffs of 15% to 20% on other countries, has led to a surge in safe-haven buying, pushing the US Dollar Index (DXY) to settle at 97.868.

Market Reactions

The dollar strengthened against major currencies, rising 0.8% against the Japanese yen and slightly against the euro. The Canadian dollar initially dropped over 0.5% in response to the tariff news but later stabilized. Despite the dollar's recent gains, the overall sentiment for the year remains bearish, with traders cautious about the sustainability of this strength.

Factors Supporting Dollar Strength

Key factors contributing to the dollar's strength include:

• Strong US labor data that has tempered expectations for immediate Federal Reserve rate cuts.
• Increased Treasury yields, with the 10-year yield rising to 4.417% and the 30-year yield to 4.954%, reflecting heightened inflation expectations due to tariff-induced cost pressures.

Technical Analysis of DXY

The DXY is currently facing resistance at 97.899. A decisive breakout above this level could signal a shift in momentum, potentially leading to a rise towards the 50-day moving average at 98.900. However, if the resistance holds, the index may retreat towards the July low of 96.377.

Outlook

While the recent tariff announcements may provide short-term support for the dollar, risks remain due to the DXY trading below its 50- and 200-day moving averages. Continued volatility is expected across US indices, foreign exchange pairs, and Treasury markets as traders react to evolving trade dynamics and potential retaliatory measures from affected countries.

Conclusion

In summary, the US dollar's recent strength is primarily driven by safe-haven demand amid renewed trade tensions. However, the long-term outlook remains uncertain, with potential for volatility as market participants assess the implications of tariff threats and the Federal Reserve's monetary policy stance.