US Dollar Index (DXY) struggles to regain 99.00 on choppy trading

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The US Dollar found support at the 98.80 area after retreating from the mid-range of the 99.00s on Friday, following Trump’s threat to impose 100% tariffs on China.

The Dollar bounced at 98.80, but is struggling to consolidate above 99.00.
Fears of a Sino-US trade war are keeping US Dollar rallies limited.
Political uncertainty in France and Japan keep underminging the safe-haven USD.

The US Dollar found support at the 98.80 area after retreating from the mid-range of the 99.00s on Friday, following Trump’s threat to impose 100% tariffs on China. The Index pared losses on Monday but is struggling to consolidate above the 99.00 level with most currencies trading in a choppy and volatile manner:
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US President Donald Trump spooked investors on Friday, announcing 100% levies on Chinese exports in retaliation for the restrictions on the rare earth trade, and tried to cool things off on Sunday with a softer post on social media playing down that possibility.

Fears of a trade war are limiting US Dollar's rallies

Investors, however, remain wary. Chinese authorities defended the curb on rare metal export to Western countries and affirmed that they will introduce countermeasures if Trump’s tariffs are finally applied.

Meanwhile, the US Federal government shutdown enters its third week with no solution in sight. Investors are practically fully pricing a quarter-point rate cut in late October and a high chance of another one in December. On Thursday, Federal Reserve Chairman Jerome Powell will take the stage and might give further insights on that matter.

Across the pond, France’s president Macron's latest attempt to create a government does show little difference from the one that lasted only 14 hours last week. In Japan, the Komeito Party confirmed its exit from the ruling coalition, leading the country into a deeper political crisis. These developments are fuelling risk aversion and keeping the US Dollar from falling further.

US-China Trade War FAQs

What does “trade war” mean?

Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.

What is the US-China trade war?

An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.

Trade war 2.0

The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.