US President Donald Trump threatened to impose 30% tariffs on goods from the European Union and Mexico over the weekend. In response, the held on to last week’s gains at the start of the new week.
The dollar briefly touched the 98 level early in the day, as investors once again turned to it as a safe-haven asset amid rising uncertainty.
Many market participants now believe Trump’s tariff threats could strengthen the US position in trade talks. This belief is helping support the dollar, which is now at its highest level in three weeks.
Although these aggressive trade tactics may create short-term uncertainty, they also reinforce the dollar’s role as the world’s main reserve currency. As a result, investors are watching closely for any signs of concessions from the EU or Mexico, which could give the dollar another boost.
On the other hand, several important US economic reports this week could influence the dollar’s direction. These include the June on Tuesday, as well as and figures on Thursday.
The dollar is expected to react to these macroeconomic numbers. If inflation comes in lower than expected, it could put downward pressure on the DXY.
Markets are currently expecting the to cut by about 50 basis points by the end of the year. Any surprise in CPI or PPI—especially higher-than-expected inflation—could shift these expectations and help the dollar hold or extend its recent gains.
Political Pressure on Powell Continues
Another key factor affecting the dollar’s direction is President Trump’s recent criticism of Federal Reserve Chairman Jerome Powell. Trump said that “Powell’s resignation would be great” and even hinted at impeachment, using the cost of Fed building renovations as a reason.
These comments raise concerns about political interference in the Fed’s independence. In the short term, this could increase political uncertainty and ironically give the dollar a temporary boost as a safe-haven asset. But in the medium term, Deutsche Bank estimates that if Powell were actually removed, the Dollar Index (DXY) could fall by 3% to 4%.
As a result, the dollar now faces pressure from two sides: political risks and economic data. For now, and growth figures are helping support the DXY. But if political threats to the Fed become more serious, the dollar could weaken.
US Dollar Tests Key Levels
At the start of the month, the Dollar Index (DXY) began to recover from oversold levels and stayed just below the 97 mark. As the new week began, the index tested 98, with the next key resistance level now seen around 98.50.
While the broader trend for the DXY is still downward, a cautious pickup in demand during July has pushed the index slightly above its previous falling channel.
However, this rebound has come with low trading volumes, and the limited buying interest has created short-term overbought conditions. If demand stays weak, it may be difficult for the DXY to break above the 98.50 level, meaning the dollar could remain under pressure against major currencies.
On the downside, the 97.30–97.60 range is a key support zone for the Dollar Index (DXY). If this area is broken, it could signal a return to the broader downtrend and open the door for a move toward the 96 level.
This week, the main factors shaping the dollar’s direction are Trump’s trade threats, political pressure on the Fed, and upcoming economic data. In the short term, strong data and Trump’s aggressive tone may continue to support the dollar.
However, if markets begin to seriously price in the risk of Powell being removed, it could lead to increased volatility in the dollar index.
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