US Dollar Forecast: Rises as 35% Canada Tariff and Strong Jobs Data Lift DXY
Published: July 11, 2025
Key Points
- The US Dollar Index (DXY) rises towards 97.80 due to new tariffs announced by President Trump.
- Trump's tariffs include a 35% tariff on Canadian goods and a 50% tariff on Brazilian imports, raising inflation concerns.
- Market expectations for aggressive Federal Reserve rate cuts have diminished as inflation risks increase.
- Initial jobless claims have decreased, indicating a stable labor market and reducing the urgency for immediate policy action.
Market Overview
During the Asian session on Friday, the US Dollar Index (DXY) experienced an upward movement, climbing towards 97.80. This increase is attributed to President Trump's announcement of new tariffs aimed at major trading partners, which has heightened safe-haven demand for the dollar. The market is now recalibrating its expectations regarding the Federal Reserve's monetary policy, particularly in light of rising inflation risks associated with these tariffs.
U.S. Tariff Expansion Sparks Inflation Concerns
The DXY's rise is primarily driven by Trump's decision to impose a 35% tariff on all Canadian imports starting August 1. This move has been accompanied by over 20 formal notices to global trade partners, warning of further tariffs if no agreements are reached. The tariffs extend to various sectors, including copper, pharmaceuticals, and semiconductors, and a 50% tariff on Brazilian goods has also been introduced. The market is now considering the broader economic implications, including potential inflationary pressures and disruptions to global growth.
Fed Policy Expectations Shift Amid Labor Strength
The evolving trade tensions are influencing expectations regarding the Federal Reserve's monetary policy. While the market still anticipates a 50 basis point rate cut by the end of the year, the likelihood of more aggressive easing has decreased. This shift is further supported by a decline in initial jobless claims to 227,000, which is better than the forecast of 235,000. This data reinforces the notion of a stable labor market, thereby reducing the urgency for immediate policy adjustments and providing additional support to the dollar.
Technical Analysis
US Dollar Index (DXY)
The DXY remains within a rising channel on the 2-hour chart, with price action consolidating below the resistance level of 97.919. The 50-period EMA at 97.508 is acting as near-term support, while the 200-period EMA at 97.635 is being tested from below. A break above 97.919 could lead to further gains towards 98.195, while a drop below 97.569 may expose lower levels around 97.270.
GBP/USD Technical Analysis
GBP/USD is currently consolidating below a descending trendline, with resistance at the 50-EMA (1.3592) and 200-EMA (1.3604). The pair has recently rejected the horizontal resistance zone between 1.3573 and 1.3560 and is now hovering just above support at 1.3524. The EMAs indicate continued bearish pressure, and failure to reclaim 1.3573 could lead to a decline towards 1.3485.
EUR/USD Technical Forecast
EUR/USD is trading near the lower boundary of a descending triangle, with support around 1.1671. The pair is capped below the 50-period EMA at 1.1716, indicating indecision in the market. A clear break above 1.1729 could shift momentum higher, while failure to hold above 1.1671 may expose lower levels at 1.1650 and 1.1625.
Conclusion
The recent developments in US trade policy and labor market data have significantly influenced the US Dollar's strength. As the market adjusts to these changes, traders should closely monitor the evolving economic landscape and technical indicators for potential trading opportunities.