US Dollar Index eases as tariff risks dent growth outlook

Key Takeaways:

• Tariff-policy uncertainty sparked broad dollar selloff as traders dumped U.S. assets.
• Headlines raise import costs, slow investment, dent risk appetite, pressuring USD.
• Unclear policy muddles Fed outlook; safe-haven bid fades, currencies reprice uncertainty.

The U.S. dollar dropped against all major currencies as tariff-policy uncertainty resurfaced around President Donald Trump’s latest plans. As reported by Bloomberg, traders sold U.S. assets on trade-policy risks, broadening the greenback’s decline.

Tariff headlines tend to hit the dollar through three channels: higher import costs that can lift inflation, weaker growth as businesses delay investment, and softer risk sentiment that reduces demand for U.S. assets. These factors complicate the Federal Reserve’s reaction function and muddy the rate outlook.

Markets are recalibrating around the balance between near-term inflation pressures and medium-term growth risks. When policy direction is unclear, currencies reprice that uncertainty quickly, and the dollar’s usual safe-haven bid can fade.

The US Dollar Index (DXY), which tracks the USD against six major peers, extended losses amid the policy overhang. According to FXStreet, DXY fell toward 97.50 in a second straight session of declines tied to trade-policy uncertainty.

Federal Reserve commentary has highlighted that larger, broadly applied tariffs could alter both growth and inflation dynamics. “Tariff increases are dramatically larger than I anticipated and could significantly affect the economy and the Federal Open Market Committee’s pursuit of our economic objectives,” said Christopher J. Waller, Governor, in an April 2025 speech.

Investor positioning appears to reflect these concerns. According to Bank of America, a recent survey showed nearly 60% of fund managers think the prospective appointment of Kevin Warsh as Fed Chair would hurt the dollar, and dollar positioning is the most bearish since at least 2012.

Deutsche Bank has also warned that tariff actions risk eroding the dollar’s safe-haven status if external balances worsen and correlations with risk-off periods continue to break down.

At the time of this writing, Bitcoin trades near 64,845, with volatility around 11.03% and an RSI of 37.87. Sentiment is flagged as bearish in the same dataset, underscoring elevated cross-asset sensitivity to tariff news without implying any view on future prices.

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