US Dollar Forecast: DXY Gains Ground as U.S.-China Trade Tensions Ease

U.S. Dollar Steadies After Hitting 3-Year Low

The U.S. Dollar Index (DXY) is on track for its first weekly gain since mid-March, recovering from a three-year low earlier this week. A combination of easing trade tensions, mixed policy signals from Washington, and bond market reactions contributed to the greenback’s rebound.

At 14:41 GMT, the U.S. Dollar Index is trading 99.667, up 0.381 or +0.38%.

Boosts Sentiment

Signs of a potential thaw in U.S.-China trade tensions gave the dollar much-needed support. China offered tariff exemptions on certain U.S. goods and encouraged businesses to seek relief, prompting optimism that the trade battle might be cooling. President Trump fueled hopes of progress by suggesting direct talks with President Xi were underway, though Beijing disputed the characterization. While concrete details remain scarce, market sentiment shifted toward cautious optimism, lifting the dollar off its lows.

Trump’s Fed Comments Roil, Then Calm Markets

The dollar faced renewed pressure early in the week after Trump hinted at firing Fed Chair Jerome Powell over interest rate policies. Markets, already sensitive to any perceived threats to the Fed’s independence, reacted sharply. However, Trump’s subsequent reversal, claiming he never intended to replace Powell, helped stabilize sentiment. The policy back-and-forth underscored persistent investor caution regarding U.S. leadership consistency, but allowed the dollar to regain some ground.

Tariff Pause Brings Relief

Following Trump’s sweeping “Liberation Day” tariff announcement, Treasury yields initially tumbled before rebounding sharply—the 10-year yield surged by half a percentage point within days. The extreme reaction prompted a 90-day delay on the new tariffs, offering breathing room for negotiations. Trump denied the bond market turmoil influenced his decision, but the tariff pause was critical in calming market nerves and supported the dollar’s recovery.

Market Forecast: Cautious Rebound in Focus

Despite this week’s dollar rally, traders remain wary. Macquarie strategist Thierry Wizman noted that even with trade talks resuming, investors are unlikely to fully restore confidence in U.S. policy stability. City Index’s Fiona Cincotta emphasized that while the dollar pulled out of oversold conditions, a durable recovery is far from certain.

With safe-haven demand easing—the yen and Swiss franc down about 0.5% each against the dollar—and gold slipping 2%, the market mood has improved slightly. However, weak consumer sentiment readings and the upcoming Fed policy silence suggest that the dollar’s advance may remain fragile. Trade negotiations and future Fed rate decisions will likely be the key drivers for DXY positioning into the next quarter.

More Information in our Economic Calendar.