The US Dollar (USD) gains temporary ground after stabilizing near its recent lows, with the US Dollar Index (DXY) rebounding from its three-year low of 99.00 to 100.00 during North American trading hours on Tuesday.
However, the recovery move could be short-lived as financial market participants remain concerned over United States (US) President Donald Trump's erratic tariff announcements, which have led them to doubt the structural attractiveness of the US Dollar.
Analysts at Commerzbank said, "With every U-turn in Trump's 'dealmaking', the US president destroys further planning security and even more trust, which is why we ultimately do not expect any significant recovery in the US dollar as long as this uncertainty persists for all participants in world and economic affairs."
Investors started doubting the credibility of the US Dollar after the declaration of a 90-day pause on reciprocal tariffs by Trump on all of its trading partners, except China, and his plans of reassessing automobile duty. On Monday, Trump said that he is exploring temporary exemptions for tariffs on imported vehicles and related parts as domestic automakers need more time to set up manufacturing facilities at home.
Additionally, firming Federal Reserve (Fed) dovish bets due to fears of a US economic recession due to Trump's economic policies have also weighed on the US Dollar. On Monday, Fed Governor Christopher Waller supported the need for interest rate cuts to battle against potential economic recession despite inflation expectations remaining escalated. "I expect the risk of recession would outweigh the risk of escalating inflation, especially if the effects of tariffs in raising inflation are expected to be short-lived," Waller said.
Source: Fxstreet
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