US Dollar holds ground amid trade tensions, increased Fed scrutiny

• The US Dollar opens the week with a firm tone but eases slightly on the day.
• US President Trump threatens the European Union and Mexico with 30% tariffs, expanding his pressure campaign on trade.
• The DXY US Dollar Index holds near a two-week high but struggles to clear key resistance at 97.80-98.00.

The US Dollar (USD) kicked off the week with a positive bias, holding onto last week’s gains as traders responded to renewed trade tensions. Still, the Greenback is trading slightly lower on the day as investors adopt a cautious tone as, over the weekend, US President Donald Trump once again grabbed the attention by adding the European Union (EU) and Mexico to his growing list of tariff targets.

The US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, is holding near two-week highs. At the time of writing, the index is consolidating just below the 98.00 mark, trading around 97.90 during the American trading session.

While last week’s upside momentum remains largely intact, the DXY is struggling to break through a confluence of key resistance levels. Investors are now turning their attention to June’s Consumer Price Index (CPI) data, scheduled for release on Tuesday, which could provide fresh direction for the US Dollar and reshape expectations around the Federal Reserve’s (Fed) next monetary policy steps.

Over the weekend, President Trump, in his typical style, reignited trade tensions by issuing warning letters to the EU and Mexico, announcing plans to impose sweeping new tariffs starting August 1.

In the letter to EU Commission President Ursula von der Leyen, Trump declared that the US would implement a 30% tariff on all EU goods unless the bloc offers “complete, open market access to the United States.” He criticized the EU for “long-term, large, and persistent trade deficits,” calling the relationship “far from reciprocal.” He warned that if the EU retaliates, “whatever the number you choose to raise them by will be added onto the 30% that we charge.”

In a separate letter to Mexican President Claudia Sheinbaum, Trump linked the tariff threat to fentanyl trafficking, accusing Mexico of not doing enough to stop the cartels. “Mexico still has not stopped the cartels who are trying to turn all of North America into a Narco-Trafficking Playground,” he wrote. A similar 30% tariff on Mexican imports is also set to take effect next month unless Mexico takes stronger action.

While both letters struck a combative tone, Trump left the door open for future adjustments, saying the tariffs “may be modified, upward or downward, depending on our relationship with your Country.”

Market Movers: Tariff tensions escalate, Powell in political crosshairs

• The latest tariff warnings directed at the EU and Mexico came shortly after the US sent similar letters to over 20 other countries during the past week. Nations such as Canada, Japan, South Korea, Brazil, and Thailand were informed that they could face new import taxes ranging from 25% to 50%, unless new bilateral trade agreements are secured by August 1. While immediate reactions have been measured, the scope of the threats is fueling underlying concerns over supply chain disruptions and retaliatory measures that could weigh on global markets.
• The EU pushed back after the US tariff threat, calling the proposed 30% duties excessive and harmful to transatlantic trade. EU Commission President Ursula von der Leyen expressed disappointment, but emphasized the bloc’s “commitment to dialogue, stability, and a constructive transatlantic partnership.” In a statement on Sunday, she confirmed that the EU would delay its planned retaliatory tariffs, originally set to take effect this week, in the hope of reaching a negotiated solution by the August 1 deadline. Still, she warned that the proposed tariffs would “disrupt essential transatlantic supply chains” and stressed that the EU would take proportionate countermeasures if talks fail.
• As trade tensions escalate, the EU is intensifying its efforts to forge a united front with other major economies. EU Trade Commissioner Maroš Šefčovič said on Monday that the European Commission is actively working to engage G7 partners, such as Canada and Japan, to coordinate their response to the US tariff threats. “We’ve always been talking to our major trading partners, especially those from the G7. What is happening is that there is this new sense of urgency,” he told reporters ahead of a meeting with EU trade ministers, as reported by Politico.eu.
• Mexico responded firmly to the latest tariff threat, with President Claudia Sheinbaum calling the proposed 30% duties unfair and counterproductive. She defended Mexico’s ongoing efforts to tackle fentanyl trafficking and organized crime, noting recent crackdowns and increased security cooperation with the US. While the response was critical, Mexico made it clear that it prefers a diplomatic path and does not intend to escalate tensions with counter-tariffs, at least for the time being. Officials also clarified that the proposed tariff would only apply to Mexican goods not covered under the US-Mexico-Canada Agreement (USMCA).
• Tensions between the White House and the Fed intensified as officials increased their criticism of Fed Chair Jerome Powell, this time over the rising costs of the central bank’s headquarters renovation project. The total cost reportedly jumped from $1.9 billion to nearly $2.5 billion, prompting a strong response from White House advisors. Top economic aide Kevin Hassett confirmed that the administration is examining whether the president has the legal authority to remove Powell, citing concerns over fiscal mismanagement. The mounting political pressure on the Fed is raising worries about the central bank’s independence, which could weigh on the US Dollar.
• All eyes are on the upcoming June Consumer Price Index (CPI) report, set for release on Tuesday. Markets anticipate both headline and core inflation to rise by around 0.3% MoM, a potential sign that price pressures are resurfacing. With trade tensions and tariff announcements back in focus, investors will be closely watching whether inflation is rising again. The outcome could heavily influence expectations for the Fed’s next move, particularly whether a rate cut remains on the table in the coming months. A hotter-than-expected reading may support the US Dollar, while a softer number could add pressure.

Technical Analysis: DXY eyes breakout above key resistance

The US Dollar Index (DXY) is trading just below the 98.00 mark after staging a modest recovery from a multi-year low.

On June 1, the index dropped to 96.38, its lowest level in over three years, following a false breakout below a falling wedge pattern. However, the move failed to trigger follow-through selling, and the DXY has since been climbing gradually.

The Index is now hovering just above the 21-day Exponential Moving Average (EMA) and testing a confluence of key resistance around 97.80-98.00 — a former support zone that has now turned into resistance, aligning with the descending wedge’s upper boundary.

Momentum indicators are showing early signs of recovery, although conviction remains moderate. The Relative Strength Index (RSI) has climbed toward the neutral 50 level, reflecting an improving but indecisive tone.

The Moving Average Convergence Divergence (MACD) on the daily chart shows a continued improvement in bullish momentum. The MACD line (blue) has crossed above the signal line (orange), often seen as an early sign of upward momentum building. Additionally, the histogram bars have flipped positive, confirming that the short-term trend has shifted in favor of the bulls. That said, the MACD is still below the zero line, indicating that the broader trend remains weak and that recent gains may still be part of a corrective bounce within a larger downtrend.

A daily close above the wedge’s upper boundary and the 98.00 psychological mark would signal a potential breakout from the recent downtrend and strengthen the bullish case for further upside. Such a move could pave the way for a rally toward the 98.50-99.00 zone.

On the other hand, 97.50 now serves as immediate support, and a break below this level may attract selling pressure, exposing the lower wedge boundary and the multi-year low near 96.38 as the next key downside targets.