Dollar Slips, Heads for Fifth Monthly Loss as Tariff Uncertainty Clouds Outlook

The U.S. dollar wobbled on Friday, on track for its fifth consecutive monthly decline as traders remained wary of escalating trade policy uncertainty and concerns over U.S. fiscal health. The greenback faced choppy trading this week, pressured by erratic developments in President Donald Trump’s tariff agenda and ahead of key inflation data.

The dollar index, which tracks the currency against a basket of six peers, edged 0.3% higher on Friday at 99.58 but is still poised for a 0.10% loss in May—marking its longest streak of monthly declines since 2017.

Markets remained jittery after a U.S. court on Thursday temporarily reinstated Trump’s sweeping tariffs, reversing a prior ruling that had blocked them. Trump expressed hope that the Supreme Court would overturn the block, while administration officials floated using alternative presidential powers to enforce the duties.

Investors are growing increasingly concerned that Trump’s unpredictable trade policies could undermine U.S. market strength. “This will not stop money from flowing into U.S. markets, but investors will be looking for more attractive incentives, such as a slightly weaker dollar or high yields,” said Kit Juckes, strategist at Société Générale.

The euro fell 0.4% to $1.1325 after mixed German state inflation data hinted at easing price pressures ahead of national figures. The greenback also edged up against the Japanese yen, which held at 143.93, although the yen is set for its first monthly loss against the dollar this year.

Longer-term concerns about U.S. fiscal health were underscored by weak demand for newly issued, longer-dated Treasury securities, echoing similar issues in Japan.

Emerging market currencies outperformed, with an index tracking them up 2% in May—its strongest monthly gain since November 2023.

Inflation in Focus

Investors are now bracing for the release of the Federal Reserve’s preferred inflation gauge, the personal consumption expenditure (PCE) report, due later Friday. Economists polled by Reuters expect the core PCE price index to rise 2.2% in April, slightly below March’s 2.3% increase, with headline inflation set to show a similar trend.

The PCE reading could shape expectations for the Fed’s rate path, especially as Trump’s tariff threats loom over global trade. Economists warn that tariffs could drive inflation higher this year by raising import costs, complicating the Fed’s task of balancing inflation control and economic growth.

Global Trade and Currency Watch

Elsewhere, Scandinavian currencies weakened against the dollar, with the greenback up around 0.5% at 10.16 Norwegian crowns and 9.58 Swedish crowns. The Japanese yen was little changed after Tokyo’s core inflation data hit a more than two-year high, reinforcing the prospect of further Bank of Japan rate hikes.

Markets are also closely watching for developments on potential U.S. trade deals as the July 9 deadline for Trump’s tariffs approaches. Traders remain cautious amid growing uncertainty, which has become a defining feature of the global economic landscape this year.