US Dollar Index falls to near 97.50 due to uncertain trade policy
- US Dollar Index weakens as US trade uncertainty and weak economic data weighed on sentiment.
- President Trump said that he will raise global import tariffs to 15% from 10% after the Court struck down his trade agenda.
- The US economy grew 1.4% in Q4 2025, while annual core PCE rose 3.0% in December, signaling persistent inflation pressures.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, extends its losses for the second successive session, trading around 97.50 during the Asian hours on Monday.
The dollar index weakened against major currencies as persistent uncertainty around the United States (US) trade policy and disappointing economic data weighed on investor sentiment. Recent legal and policy developments have compounded confusion over the outlook for tariffs and growth.
Global markets remain on edge after the US Supreme Court struck down most of President Donald Trump’s emergency tariff authority, limiting the use of emergency powers to impose broad reciprocal tariffs. In response, Trump announced plans to pursue a new 15% global tariff under alternative trade statutes, prolonging trade policy ambiguity.
On the economic front, US data added to the dollar’s downward pressure. The economy grew at an annualized 1.4% in Q4 2025, well below expectations, while core PCE inflation climbed to 3.0% year-over-year in December, reinforcing the view that inflation remains sticky and complicating the Federal Reserve’s (Fed) policy outlook.
While the weaker US Dollar reflects easing concerns about tariff-driven inflation and slower growth, downside may be limited by broader risk aversion, including lingering tensions between the US and Iran, which continue to influence safe-haven flows.
The New York Times reported on Sunday that Trump is weighing limited airstrikes on Iran. He indicated that if diplomatic efforts or an initial targeted US strike fail to persuade Iran to abandon its nuclear program, a broader attack could be considered in the coming months.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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