The dollar index climbed to 99 on Wednesday, its highest level in a month, as global investors downplayed worries about uncertain White House economic policy and maintained their exposure to dollar-denominated assets. President Trump ultimately raised the new Section 122 tariffs to 10%, backing off earlier threats to increase them to 15%, after the Supreme Court struck down the series of country-specific tariffs imposed under IEEPA ten months ago. Fears that the administration would pursue more aggressive levies also eased, as tariff rhetoric was relatively subdued in the President’s State of the Union address, and Congress is seen as unlikely to extend the measures beyond the fourth quarter.
At the same time, dollar supply in the financial system may expand more gradually, reflecting incoming Federal Reserve Chairman Kevin Warsh’s preference for a smaller Fed balance sheet. In addition, concerns over persistent inflation led rate traders to delay expectations for the next interest rate cut, now largely priced in for September.
