Dollar Strengthens as Trump Announces New Tariffs

The U.S. dollar edged higher on Monday as investors reacted to President Donald Trump’s announcement of 25% tariffs on all steel and aluminum imports, with additional reciprocal tariffs expected midweek.

• U.S. Dollar Index (DXY): Up 0.1% to 108.17
• USD/JPY: Up 0.59%, reversing last week’s yen rally
• EUR/USD: Flat at $1.0329
• USD/CAD: Up 0.2%, before moderating

Key Market Reactions

1. Stock Markets Rebound Despite Tariff Concerns
   • U.S. Futures: S&P 500 contracts up 0.35%, rebounding after a 0.95% drop on Friday
   • Europe’s STOXX 600: Up 0.28%, despite Friday’s 0.38% decline
   • Nikkei 225: Flat
   • Hang Seng: Up 1.84%
   • China’s CSI 300: Up 0.21%
2. Steelmakers Under Pressure
   • European steel stocks declined, with ArcelorMittal and Salzgitter among the biggest losers.
3. U.S. Interest Rate Outlook and Inflation Risks
   • Tariffs could fuel inflation, reducing the Fed’s ability to cut rates.
   • Markets now expect just 36 basis points of Fed rate cuts in 2025, down from 42 bps.
   • 10-year Treasury yield rose 1 basis point to 4.497%, signaling modest risk-off sentiment.

Fed Watch: Powell’s Testimony in Focus

• Fed Chair Jerome Powell will testify before Congress on Tuesday and Wednesday, where tariff impacts on policy will likely be a key discussion point.

Market Outlook

• The dollar remains supported as tariff risks fuel inflation concerns and limit Fed easing potential.
• Equities show resilience, but steel and commodity-related sectors face headwinds.
• All eyes on Powell’s testimony, as traders gauge the Fed’s stance on rates in response to trade developments.