The US dollar strengthened again on Tuesday (08/07) after falling earlier in the day, as market sentiment stabilized following US President Donald Trump's executive order extending the tariff deadline to August 1 from July 9.

US President Trump posted a trade warning letter on his social media platform, Truth Social, on Monday night, addressed to 14 countries, including Japan and South Korea. The letter warned of the possibility of new "reciprocal" tariffs taking effect on August 1. The news had boosted demand for the US dollar as investors turned to safe-haven assets. However, with the deadline now pushed back, markets are hoping there is still time for negotiations, causing the US Dollar Index (DXY) to weaken slightly on Tuesday.

The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, moved higher during American trading hours after recovering earlier losses from the Asian session. The index hit an intraday low of 97.18 before bouncing back modestly, reflecting a cautious tone in the market as traders await further developments on tariffs. At the time of writing, the DXY was trading around 97.77.

The delay has also revived familiar skepticism in the market, with some traders referring to the acronym "TACO" – ‘Trump Always Chickens Out' – to describe the recurring pattern of tough tariff talks followed by deadline extensions or softer measures. This has dampened the initial bid for the safe-haven US dollar, as investors bet that an extension could lead to a deal rather than an outright escalation.

Beyond short-term market moves, the US dollar remains under pressure due to lingering fiscal uncertainty, rising government debt and concerns over long-term economic stability. The ballooning US deficit has been a major concern for global investors, with debt levels near historic highs. The public portion of US debt is approaching $30 trillion, and the 2025 federal deficit is projected to reach nearly $2 trillion, raising doubts about the sustainability of the country's fiscal path.

At the same time, Trump's criticism of the Federal Reserve (Fed) and rising expectations for interest rate cuts have added to the pressure on the greenback. The 30-day Fed funds futures contract now prices a 100 basis point rate cut over the next 12 months, according to CME FedWatch, lowering the expected target range to 3.25%–3.50%.(alg)

Source: FXstreet