Dollar Is Climbing amid Trade Bazookas Heavy Fires

The U.S. Dollar index (DXY) is rising by 0.22% to 103.25 points, while the EURUSD has slipped by 0.30% to 1.09265. The Dollar’s rebound comes in the aftermath of a stunning tariff escalation by U.S. President Donald Trump, who announced sweeping new levies on goods from 185 nations last Wednesday.

Interestingly, the Greenback initially dropped the following day, with the EURUSD surging by 2.9% in a single session to 1.11460—the highest level since September 2024. This move was largely attributed to technical positioning, as a wave of stop-losses on short Dollar trades—mostly set around the 1.09500 level—were triggered, forcing traders out of their positions. Once this stop-hunting surge occurred, the pair quickly reversed and began sliding back down, touching 1.09000 on 7 April, in line with escalating trade tensions.

Institutional investors continue to send mixed signals. Despite the reversal in the Dollar’s direction, they added $6.8 million to the WisdomTree Bloomberg US Dollar Bullish Fund (USDU) last week. This came on top of $67.3 million previously placed on a weakening Dollar. These positions are now flat or underwater, suggesting that large players are not yet ready to abandon their bearish Dollar stance, even if conditions no longer favour such positioning.

Technically, there is little to support another major EURUSD rally. With the Federal Reserve holding an emergency meeting on 7 April without altering monetary policy, macroeconomic conditions remain steady. The U.S. labour market and business activity both appear robust. Unless there is a significant policy shift, there is little justification for renewed weakness in the Dollar. Meanwhile, global trade tensions are intensifying. Following Trump's latest move, China retaliated with 34% tariffs, and Trump has already threatened to raise Chinese import tariffs by an additional 50%. China appears ready to respond in full, further stoking fears of a global trade war.

In such an environment, it is difficult to imagine investors favouring the Euro or Yuan as safe haven currencies. The Dollar remains the asset of choice during times of geopolitical and economic uncertainty. However, it remains to be seen how large investors will adjust their positions to protect their bearish bets on the Greenback.

A correction in EURUSD to 1.06000 remains the baseline scenario, but its timing is being delayed by the ongoing trade conflict. In the near term, the pair could continue declining toward 1.08600–1.08800 by the end of the week. A break below these levels would open the door for further downside.

Looking ahead, the release of the FOMC Minutes on Wednesday is unlikely to deliver much market momentum. More attention will be on U.S. inflation data due Thursday, with consumer prices expected to ease to 2.6% in March from 2.8% previously. A softer print could support dovish expectations for the June Fed meeting. Still, any macroeconomic influence will be secondary to the unfolding tariff battle between the U.S., China, and potentially the European Union. Until that storm passes, data releases are likely to have a muted impact on market direction.