The U.S. dollar is treading water near its weakest levels in years, as markets await the official end of the tariff moratorium and the announcement of new tariff rates. 

As the US President prepares to lift the 90-day pause on his controversial tariffs, investors are bracing for the ripple effects on global trade and currency markets. The dollar’s movements are becoming increasingly sensitive to trade headlines, with many wondering how the upcoming tariff increases will impact the broader economy.

Rineplex’s Lead Financial Analyst emphasizes that, “The timing of this tariff decision couldn’t be more critical. With the dollar already under pressure, any market misstep could lead to heightened volatility.”

The Countdown to Higher Tariffs

The central event looming over the currency markets is the end of the 90-day moratorium on US President’s “Liberation Day” tariffs, which will conclude on July 9. Starting August 1, many countries are set to face steeper duties on their exports to the U.S., a situation that has traders on high alert.

The US President indicated that the new tariff rates will apply to a range of countries, with some of them receiving letters informing them of the impending hikes. As of now, the only countries to have struck trade deals with the U.S. are Britain, China, and Vietnam, while others remain in limbo.

The end of the moratorium could stir up significant market volatility, with many analysts predicting that the impact may be less severe than previous tariff announcements. According to James Kniveton, a senior corporate FX dealer at Convera, “Unlike earlier tariff hikes, the current proposals are largely anticipated. However, the announcement still has the potential to unsettle markets.”

Currency Market Reactions: A Fragile Dollar

The U.S. dollar is struggling to maintain its footing, recently touching its lowest level since 2021 against the euro and its weakest against the Swiss franc since 2015. This pressure on the dollar is compounded by the looming tariff announcements, which are adding to the uncertainty surrounding U.S. trade policy.

• The dollar slipped 0.1% against the Swiss franc, moving closer to 0.7869, a level unseen since January 2015.
• The euro edged down by 0.1%, hovering at $1.1773, not far from its recent high of $1.1829 on July 1, the strongest level since September 2021.
• The British pound weakened slightly by 0.2%, standing at $1.3628.

With these movements, the dollar index, which tracks the U.S. dollar against a basket of major currencies, gained 0.1% to 97.058, but remained above Tuesday’s nearly 3.5-year low of 96.373.

The Impact on Antipodean Currencies

As global economic and trade uncertainties rise, currencies like the Aussie dollar and New Zealand dollar are also feeling the strain. The Aussie dollar fell 0.5% to $0.6519, moving further away from its July 1 peak of $0.6590. Investors are anticipating a rate cut by the Reserve Bank of Australia (RBA), which is expected to announce a quarter-point reduction in its cash rate on July 8 due to cooling inflation and slower growth.

• The Reserve Bank of Australia (RBA) is widely expected to adjust rates, signaling a dovish outlook that may leave the door open for more cuts by the year-end.
• The New Zealand dollar dropped by 0.4% to $0.6026, also reflecting uncertainty in global trade and weaker expectations for growth.

Looking Ahead: Potential Market Shifts

As the tariff deadline approaches, markets are increasingly sensitive to trade-related headlines. The potential for higher tariffs could weigh heavily on the U.S. dollar and, in turn, influence global markets. But the degree of volatility that unfolds will likely depend on how the market absorbs these new tariffs and the final decisions made by the U.S. administration.

For now, the dollar is caught in a delicate balancing act, as it contends with both trade policy uncertainty and the broader economic outlook. Any misstep in tariff announcements or trade deals could spark a significant reaction in the currency markets.

The Bigger Picture: What to Watch For

In the weeks ahead, there are key developments to keep an eye on:

• U.S. tariff announcements: Will the tariff hikes be implemented as expected, and how will this impact global demand?
• Federal Reserve actions: A rate cut by the U.S. Federal Reserve could further influence the dollar’s position, particularly against other major currencies.
• Global trade sentiment: The outcome of pending trade deals and negotiations will set the tone for how markets react to the next set of tariffs.

Final Thoughts: Market Volatility Ahead

The U.S. dollar faces a crucial test as the looming tariff deadline could trigger significant market reactions. Traders have priced in some uncertainty, but the market’s response will depend on the final tariff decisions and any trade deals. 

As Experts of Rineplex note, “The dollar’s struggles are just one part of the story; the impact of tariff shifts and broader economic concerns are key.” Investors will need to stay flexible as new tariffs and trade agreements unfold, anticipating heightened volatility. The coming weeks could determine how currencies, particularly the dollar, react to changing economic policies.