Dollar Slips on Renewed Tariff Tensions

Investor sentiment takes a hit as tariff escalation revives trade concerns.

The US dollar weakened at the start of the week, with the Dollar Index falling toward 99 on Monday, giving up gains made the previous week. The renewed downward pressure on the greenback came as tariff tensions flared once again, injecting fresh uncertainty into global markets.

Trump’s Tariff Move Rattles Markets

Investor nerves were tested after Donald Trump announced a sharp increase in tariffs on steel and aluminium imports, with rates set to double to 50% starting June 4. The unexpected move signaled a potential return to aggressive trade policies, reminiscent of earlier trade conflicts that weighed heavily on market confidence during Trump’s previous administration.

The decision reignited fears of retaliatory measures from key trading partners and raised concerns about global economic growth, pushing investors away from the US dollar.

A Shift in Sentiment

The dollar’s pullback comes after a brief period of strength, driven by resilient economic data and hawkish commentary from the Federal Reserve. However, the renewed trade tensions appear to have overshadowed recent optimism, with markets now bracing for possible disruptions in international supply chains and trade relations. While the full economic impact of the new tariffs is still being assessed, currency markets have already begun to price in greater volatility. Analysts suggest that a prolonged standoff or further tariff escalations could weigh more heavily on the dollar, especially if risk-off sentiment continues to build.

Outlook: Uncertainty Ahead

As June 4 approaches, all eyes will be on how trading partners respond and whether further tariff measures are announced. In the meantime, traders will be closely watching economic indicators, central bank signals, and geopolitical developments for clues on the dollar’s next move. For now, the dollar’s retreat reflects a fragile market environment, where trade headlines can quickly shift momentum — a reminder that in today’s globalized economy, political decisions can have swift and far-reaching consequences for currency markets.

SOURCE: https://www.reuters.com/world/middle-east/us-dollar-declines-traders-assess-tariff-outlook-2025-06-02/