Market News

• The US Dollar fell sharply below 99 amid rising geopolitical and trade tensions.

• Trump’s tariff hike risks reigniting trade wars, raising doubts about the US-China trade truce.

• Key US economic data this week, especially Friday’s nonfarm payrolls, will influence the dollar’s path.

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The US Dollar started the week with a sharp drop, falling below the 99 level and testing last week’s lows. Rising geopolitical tensions, stricter US trade policies, and a packed US economic data schedule have made investors more cautious. Although the dollar saw some small gains last week, it lost those gains quickly this week due to growing political and economic uncertainty.

Is the China Trade Deal Falling Apart?

The pressure on the US Dollar is mainly due to President Donald Trump’s announcement that tariffs on steel and aluminum imports will rise from 25% to 50% starting June 4. This decision has raised fears that trade wars could return, weakening investor confidence.

The move also cast doubt on the temporary trade truce reached with China in Switzerland last month. Trump accused China of breaking the deal, but China strongly denied it. It is still unclear whether the two leaders will meet soon.

Kevin Hassett, head of the US National Economic Council, said a meeting between Trump and Chinese President Xi Jinping could happen later this week. However, markets are treating this possibility with caution.

Some analysts believe the US does not plan to remove tariffs completely, but the lack of clear direction is adding long-term uncertainty. The dollar index is also under pressure from concerns about slowing US growth. According to Morgan Stanley (NYSE:MS), the US economy may weaken by mid-next year, leading to expected interest rate cuts. The bank predicts the dollar index (DXY) could drop nearly 9% to around 91—a level last seen during the pandemic.

Busy Data Calendar

The economic data scheduled for this week will be key to where the US dollar heads next. Today, markets will watch both the US ISM manufacturing PMI and manufacturing PMI data from the Eurozone. Speeches from Federal Reserve members will also be closely followed for any hints about future interest rate moves.

On Wednesday, the ADP private sector employment report and the Fed’s Beige Book will be released. On Thursday, the foreign trade balance and unemployment claims data will come out. The most important data point of the week will be the US nonfarm payrolls report on Friday.

These reports could strongly influence the Fed’s short-term policy decisions. Analysts expect job growth to slow, but the unemployment rate is likely to hold steady at 4.2%. If the data show the labor market remains strong, fears of a recession may ease, and the dollar could bounce back. On the other hand, weaker job numbers may add more pressure on the dollar.

Geopolitical Risks Rise Sharply

Tensions on the geopolitical front are adding to the pressure on the US dollar. Over the weekend, Ukraine carried out a large drone strike on Russian military sites, reportedly damaging nearly 40 bombers. This renewed conflict has pushed investors toward safer assets. How Russia will respond remains uncertain. Talks are expected to take place in Istanbul, but the latest attacks raise doubts about the success of any diplomatic progress.

Meanwhile, markets are also watching the European Central Bank’s meeting on Thursday. The ECB is expected to cut interest rates by 25 basis points. While this puts some pressure on the euro, the move may still support the euro against the dollar, given the political and economic uncertainty in the US.

In short, the dollar index is currently weighed down by trade tensions and signs of economic weakness. Geopolitical risks, unclear Fed policy, and especially renewed friction between the US and China will shape its direction. Friday’s nonfarm payrolls data will be one of the most important indicators this week.

Technical Outlook for US Dollar

Although the US Dollar slowed its downward trend last week, the developments over the weekend put pressure on the index again. As the US Dollar lost its intermediate support at 99, it started to slide below the level where it has found support since April.

The current trend may lead the US Dollar to test the 97.90 level once again this week. On a weekly close below this level, the index will return to the falling channel that originated in February. Thus, in the coming months, we may see that the downtrend may continue towards the 95 region and then towards the 92 level.

However, the easing of trade tensions and the data releases this week that are supportive of the US economy may help the US Dollar to find support in the 98 region again. In upward moves, daily closes above 99.65 can be followed as a sign of recovery. Then, the index may be expected to move towards the 100-102 region. However, the current outlook suggests that the US Dollar may continue its downward trend rather than a recovery.