US Dollar Forecast: Bearish Bias Builds as Tariff Tensions Threaten U.S. Growth

Dollar Index Pressured as Yields Rise but Tariff Risks Dominate Sentiment

The U.S. Dollar Index (DXY) edged lower Thursday, down 0.29% to 104.34, defying a modest uptick in Treasury yields as market focus shifted to the escalating trade dispute triggered by President Trump’s 25% tariff on foreign-made autos. The index, which hit a three-week high the previous session, is now trading just above key Fibonacci support at 103.984, with resistance capped by the 200-day moving average near 104.927.

Tariff Announcement Fuels Growth and Inflation Concerns

Trump’s tariff rollout, effective April 3, targets all imported vehicles and critical auto components, heightening global trade tension. Major U.S. trading partners—including Canada, Mexico, Germany, Japan, and South Korea—are expected to respond, prompting fears of retaliatory duties. Industry analysts warn the tariffs could raise average car prices by $5,000 to $10,000, triggering inflationary pressure and weakening consumer demand. While markets initially saw limited FX reaction, investor sentiment remains cautious with longer-term implications for U.S. growth.

Mixed Data Underscore Uncertain Economic Path

Economic data presented a mixed picture. Q4 GDP was revised up to 2.4%, with growth led by consumer and government spending. Meanwhile, inflation indicators showed modest cooling, with core PCE revised down to 2.6%. Corporate profits rebounded by over $200 billion in Q4, yet softer investment and export figures highlighted areas of vulnerability. Jobless claims came in steady at 224,000, pointing to labor market resilience, but consumer confidence slid to a 12-year low, adding to recessionary concerns.

Yields Climb as Fed Outlook in Focus

Despite the risk-off backdrop, U.S. yields climbed modestly. The 10-year Treasury yield rose over three basis points to 4.371%, while the 2-year held near 4.012%. This divergence between rising yields and a weakening dollar suggests broader uncertainty around the Fed’s next steps. Comments from Fed officials signaled little urgency to cut rates, reinforcing the market’s cautious tone ahead of Friday’s PCE inflation data.

Market Forecast: DXY Range-Bound, Vulnerable to Tariff Fallout

The DXY remains confined below resistance near 105.17, with sellers defending the 200-day average. While steady labor data and higher yields typically support the dollar, the broader macro headwinds—particularly tariff-related growth fears—are capping upside momentum.

If reciprocal tariffs are confirmed next week and growth expectations deteriorate, DXY could retest support at 103.20. Near-term bias is neutral to bearish, with clarity expected from upcoming inflation data and tariff responses. Euro/dollar risks remain tilted lower toward 1.03 on sustained trade stress.

More Information in our Economic Calendar.