The problem, however, is trade tensions, compounded by new tariffs on US industries & delays in trade agreements with the EU and India, which are still putting some pressure on the currency.
US President Donald Trump’s administration is considering new tariffs on six US industries in the wake of a Supreme Court ruling that just knocked down a bunch of his second-term tariffs. These tariffs are of a different sort from the 15% global tariff announced last Saturday & will be under the 232 Section of the Trade Expansion Act of 1962.
On top of that, the European Union has just said it might put the brakes on its trade deal with the US. Similarly, India and the US just postponed a meeting to finalise a trade agreement because Washington is sorting out its tariff plans. All in all, this uncertainty is keeping investors cautious about dollar assets.
Fed Rate Speculation & Dollar Movement
It’s not just trade worries that are affecting the dollar – people are also speculating on US interest rates. Fed Governor Christopher Waller said that he supports a rate cut next March but only if the Feb labour market data is good. In fact, markets are currently putting the chances of a 25 bps cut in March at only about 5%.
Looking ahead, the US dollar might face some trouble as people expect around 50 bps of rate cuts in 2026. In contrast, the Bank of Japan is expected to raise rates by 25 bps, while the European Central Bank is expected to keep policy the same next year.
