The US dollar dipped down on Monday and gave up some of the gains made last week as investors assess the impact of US President Donald Trump’s tariffs.

The dollar was hurt after Trump announced plans to double the steel and aluminum tariffs to 50%, while China and the US traded criticism and accusations of violating the recent trade agreement in Geneva.

The dollar fell 0.3% to 143.57 yen as of 04:39 GMT, giving up some of the 1% gains made last week.

Euro rose 0.1% to $1.1362, while sterling added 0.2% to $1.3485.

Aussie rose 0.3% to $0.6453, while the New Zealand dollar rose 0.4% to $0.5994.

The dollar index fell 0.1% against a basket of major rivals to 99.283.

The Trade War Impacts the Dollar

The US dollar suffered weeks of volatile trading due to Trump’s changing tariff policies, amid persistent concerns about a US recession.

It fell 3% in the week after the Liberation Day’s tariffs in April, andfell 1.9% in the week after Trump’s threats to impose 50% tariffs on EU goods.

The dollar had a transient recovery last week as the US resumed trade talks with the EU and a US trade court suspended Trump’s tariffs, but a day later, the appeals court stayed the tariffs.

Goldman Sachs Warns Against Persistent Risks 

Goldman Sachs expects that 10% tariffs will continue to apply on major US trade partners, in turn bolstering the “sell America” narrative as investors flee US assets.

And this week, the Senate will discuss Trump’s tax reform bill, which could add $3.8 trillion to the US government debt pile in the next 10 years.

A particular sticking point in the bill in section 899, giving the US freedom to impose taxes on corporations and investors from countries that impose “unfair taxes” on US goods and companies.

Such a bill would massively hurt global investor sentiment and interest in the US market.

Gold prices rose over 2% in European trade on Monday, trading once more above $3300 on strong haven demand amid mounting US-China trade tensions. 

The US dollar skidded to six-week lows against a basket of major rivals, amid renewed concerns about a US recession as investors await Fed Chair Jerome Powell’s remarks later today.

Prices

Gold prices rose 2.1% today to $3359 an ounce, with a session-low at $3289.

On Friday, gold lost 0.9%, the fourth loss in five days under the pressure of a stronger dollar.

Trade Tensions

China responded to US accusations of violating the Geneva trade agreement, by also accusing Washington of violating the deal, in a sign of deteriorating conditions between the two biggest economies in the world.

Trade tensions resumed after a short hiatus last month, when both sides signed a deal to suspend most tariffs for 90 days in Geneva.

Then the Trump administration put new limits on chip and chemical exports to China, and cancelled Chinese students’ visas, triggering the ire of Beijing.

China’s commerce ministry warned that such measures contradict the spirit of the Geneva deal, but conversely, Beijing maintained strict control over exports of rare earth minerals.

US Dollar

The dollar index fell over 0.7% on Monday to a six-week trough at 98.68 against a basket of major rivals.

A weaker dollar makes the greenback-denominated gold futures cheaper to holders of other currencies. 

US Rates

Fed official Christopher Waller said rate cuts later this year are still possible even if Trump’s tariffs lead to price pressures.

According to the Fedwatch tool, the odds of a Fed 0.25% June interest rate cut stood at 2%, while the odds of a July rate cut stood at 24%.

Now traders expect 50 basis points of US rate cuts overall this year, starting October.

SPDR

Gold holdings at the SPDR Gold Trust remained unchanged on Friday at a total of 930.20 tons, the highest since May 13.

The euro rose in European trade on Monday against a basket of major rivals, moving in a positive zone against the dollar amid renewed negative pressures on the US currency due to mounting US-China trade tensions. 

Recent positive eurozone data and bullish remarks from ECB officials led to divisions among policymakers about the prospect of a rate cut in June, as traders await main inflation data for the eurozone tomorrow.

The Price

The EUR/USD rose 0.3% to $1.1382, with a session-low at $1.1345.

The euro fell 0.2% against the dollar on Friday following positive US data.

US Dollar

The dollar index fell 0.3% on Monday, resuming losses after a hiatus on Friday against a basket of major rivals.

The decline comes amid renewed inflationary pressures on the US currency amid concerns about economic recession due to mounting US-China trade tensions.

China responded to US accusations of violating the Geneva trade agreement, by also accusing Washington of violating the deal, in a sign of deteriorating conditions between the two biggest economies in the world.

Trade tensions resumed after a short hiatus last month, when both sides signed a deal to suspend most tariffs for 90 days in Geneva.

Then the Trump administration put new limits on chip and chemical exports to China, and cancelled Chinese students’ visas, triggering the ire of Beijing.

China’s commerce ministry warned that such measures contradict the spirit of the Geneva deal, but conversely, Beijing maintained strict control over exports of rare earth minerals.

European Rates

Recent eurozone data showed inflation rose past estimates in April, renewing pressures on ECB policymakers. 

ECB President Christine Lagarde said the euro could be a practical alternative to the dollar if governments managed to bolster the financial and security structures in the EU.

Now markets estimate a less than 50% likelihood for a 0.25% ECB rate cut in June.

The Japanese yen rose in Asian trade on Monday on track for the third profit in a row against the US dollar on haven demand amid mounting global and geopolitical tensions. 

Renewed US-China tensions threaten to tank the initial trade agreement reached in Switzerland, with increasing animosity between Russia and the west after Ukraine executed a complex attack that targeted Russian air bases. 

Recent Tokyo data showed increasing inflationary pressures on the Bank of Japan, which boosted the odds of a June interest rate hike by the Bank of Japan.

The Price

The USD/JPY price fell 0.55% to 143.32, with a session-high at 144.10.

The yen rose 0.1% on Friday against the greenback, following hot Tokyo inflation data.

Trade Tensions

China responded to US accusations of violating the Geneva trade agreement, by also accusing Washington of violating the deal, in a sign of deteriorating conditions between the two biggest economies in the world.

Trade tensions resumed after a short hiatus last month, when both sides signed a deal to suspend most tariffs for 90 days in Geneva.

Then the Trump administration put new limits on chip and chemical exports to China, and cancelled Chinese students’ visas, triggering the ire of Beijing.

China’s commerce ministry warned that such measures contradict the spirit of the Geneva deal, but conversely, Beijing maintained strict control over exports of rare earth minerals.

Geopolitical Tensions 

In Europe, Ukraine executed an unprecedented military operation inside Russia, targeting five strategic air bases and damaging over 40 military airplanes, including Tu-95, Tu-22M, and A-50 planes.

Ukraine estimates the operation destroyed nearly 34% of Russian strategic bombers, with losses amounting to $7 billion.

Russia is expected to respond with heavy retaliatory strikes, likely targeting strategic Ukrainian infrastructure, and maybe even targeting the decision-making centers inside Kiev with long-range missiles.

Japanese Rates

Earlier data showed consumer prices in Tokyo rose 3.6% y/y in May, the fastest pace since January 2023, and up from 3.4% in April.

Following the data, the odds of a BOJ 0.25% interest rate hike in June rose from 35% to 45%.

Bank of Japan Deputy Governor Shinichi Uchida said the bank will continue to raise interest rates if the economy recovers from the negative impact of US tariffs, however he still cautioned that the economic outlook remains highly uncertain.

Now traders await more Japanese data on inflation, unemployment, and wages to gather additional clues.