The US dollar (USD) started the week with a positive bias, maintaining last week's gains as traders responded to the resurgence of trade tensions. However, the greenback traded slightly lower today as investors remained cautious. Late last week, US President Donald Trump again attracted attention by adding the European Union (EU) and Mexico to his growing list of tariff targets.

The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, held near a two-week high. At the time of writing, the index was consolidating just below the 98.00 level, trading around 97.80 during the European trading session.

Although last week's upward momentum remained largely intact, the DXY struggled to break through key resistance levels. Investors are now turning their attention to the June Consumer Price Index (CPI) data, scheduled for release on Tuesday, which could provide fresh direction for the US dollar and reshape expectations surrounding the Federal Reserve's (Fed) next monetary policy move.

Over the weekend, President Trump, in typical fashion, rekindled trade tensions by issuing warning letters to the European Union and Mexico, announcing plans to impose sweeping new tariffs starting August 1.

In his letter to European Commission President Ursula von der Leyen, Trump stated that the US would impose a 30% tariff on all EU goods unless the bloc offered "complete open market access to the United States." He criticized the EU for its "long-term, large, and persistent trade deficit," calling the relationship "far from reciprocal." He warned that if the EU retaliates, "any amount you choose to increase it will be added to the 30% tariff we are imposing."

In a separate letter to Mexican President Claudia Sheinbaum, Trump linked the tariff threat to fentanyl trafficking, accusing Mexico of not doing enough to stop the cartels. "Mexico has still not stopped the cartels from trying to turn all of North America into a drug trafficking arena," he wrote. A similar 30% tariff on Mexican imports will also take effect next month unless Mexico takes stronger action.

Despite the aggressive tone of both letters, Trump left open the possibility of future adjustments, saying that tariffs "may be modified, up or down, depending on our relationship with your country." (alg)

Source: FXstreet