DXY: US Dollar Soars in Forex Deals as Tariffs Roll Out to Support Bullish Narrative

For the short time where the US dollar wasn’t in fashion (few days), rival currencies had it good. Now? Not so much.

🤔 The Scary Executive Order

• The US dollar index DXY rose sharply to kick off weekly trading after President Donald Trump over the weekend signed a scary executive order. The order slaps America’s biggest trade partners with tariffs in the range of 10% to 25% with more to come.
• China is getting 10% levies on all imports and Mexico and Canada are getting hefty 25% import duties on imports with the exclusion of Canadian oil and energy products — these get 10%.

📈 Dollar Gains on Trump’s Tariffs

• Apparently, tariffs are highly bullish for the US dollar. The greenback’s index, measuring the dollar’s strength against six currency rivals, jumped as much as 1.2%. What’s more, the move wreaked havoc across the forex board, knocking the valuations of other big-shot currencies.
• The EURUSD, for one, opened Monday’s session with a wide 1.1% gap going straight to $1.0240. The USDJPY shot up by 0.6% to 155.60 and the GBPUSD also kicked off the day with a gap to $1.2250.

☝️ The Thing About Tariffs…

• The initial reaction to the disruptive tariffs showed investors shunned risk and flocked to the safe haven allure of the US dollar. Why? Tariffs are one of the ways to shield domestic businesses from foreign competition as they make imported goods worth more. But who’s paying that “more?”
• American companies pay the added cost between 10% and 25%, meaning their products just got more expensive for US consumers. And hence the strengthening of the dollar. But this dynamic could lead to many problems, such as trade war, supply chain hiccups and — most of all — elevated inflation.