Moreover, Trump’s tariff policy has already faced legal challenges. A US trade court blocked some measures last week, citing executive overreach. However, an appeals court reinstated the tariffs the following day. The Trump administration also signalled its intention to pursue alternative legal channels to enforce the levies.
Trump Tariffs Trigger Sharp Decline in US Dollar and Boost Volatility
Last week, the US dollar rebounded from a significant support zone after talks with the EU resumed and a trade court blocked parts of Trump’s tariffs. However, the rally was short-lived, and following the announcement of new tariffs on steel and aluminium, the dollar resumed its decline.
This decline has pushed the dollar lower against other major currencies. EUR/USD has increased to $1.1450, GBP/USD to $1.3555, and AUD/USD to $0.65, while NZD/USD has increased to $0.6050. However, after hitting these levels, the market cooled off as the US Dollar rebounded with substantial volatility. On the other hand, gold (XAU/USD) has broken the key level of $3,360 on strong safe haven demand.
The forex market views these moves as a reaction to Trump’s trade escalation. Doubling tariffs on steel and aluminium could slow growth and fuel inflation. The US dollar has struggled and remains uncertain due to sudden shifts in tariff policy throughout 2025.
On the other hand, fiscal worries add to the bearish pressure on the US dollar. Investors are increasingly uneasy about the rising US deficit. Trump’s proposed tax and spending bill would add $3.8 trillion to the existing $36.2 trillion federal debt over the next decade. This has fueled a broad “Sell America” sentiment across stocks, bonds, and the dollar.
Weak US Economic Data Undermines Confidence Despite Easing Conditions
The chart below shows that the National Financial Conditions Index has dropped to -0.606, indicating a shift toward monetary easing. This suggests that financial conditions remain loose despite ongoing trade tensions and fiscal stress.