The U.S. dollar soared to a three-week high on Monday as President Donald Trump followed through on his promise of imposing new trade tariffs on China, Canada, and Mexico. Investors rushed to the greenback as a safe-haven asset, pushing the U.S. Dollar Index (DXY) up 0.7% to 109.005 as of 08:25 ET (13:25 GMT).
The move comes as the U.S. effective tariff rate surged from 2.3% to 10%, a significant jump that has strengthened the dollar’s appeal relative to other currencies. Analysts at Citigroup (NYSE:C) stated in a note that the DXY could trade within the 106-110 range in the near term, with a potential upside risk up to 115—although such an increase would likely be an overshoot.
Citi’s calculations indicate that the recent tariff hikes alone could add approximately 3% upside to the dollar’s value. With Friday’s close already pricing in an overvaluation of 0.8% relative to rate differentials, there remains another 2.2% potential upside in the greenback, possibly taking the DXY to 110.90 in the short term.
The impact of the stronger dollar is being felt across asset classes:
Equities: U.S. stock futures turned negative, with S&P 500 Futures down 0.3%, Nasdaq 100 Futures falling 0.5%, and Dow Jones Futures declining 0.3%.
Commodities: A stronger dollar has put downward pressure on commodities. Gold prices dipped below $2,000 per ounce, while crude oil futures slipped as well.
Emerging Markets: Currencies of emerging markets, including the Chinese yuan (CNY) and Mexican peso (MXN), depreciated further against the dollar as investors braced for continued volatility.
While the greenback has gained significant ground, Citi’s analysts caution that the risk/reward scenario is less attractive at these levels. With the DXY at 109.66, a further climb beyond 110.90 might be difficult unless additional economic shocks materialize.
The Federal Reserve’s monetary policy will also play a critical role in determining the dollar’s trajectory. Higher inflation expectations, driven by rising tariffs, could reduce the likelihood of Fed rate cuts in the near future. This could, in turn, provide continued support for the greenback.
The latest tariff escalation has created a bullish environment for the U.S. dollar, but whether it maintains its momentum will depend on how markets digest economic data and policy developments in the coming weeks. Investors should closely monitor forex market trends using reliable data sources such as Financial Modeling Prep’s Forex Daily API to stay ahead of currency fluctuations and make informed decisions.
With trade tensions back in the spotlight, all eyes will be on Trump’s next move—and how global markets react.
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