US Dollar Index jumps to near 108.00, Trump tariff policies in focus

• The US Dollar Index climbs to around 107.95 in Tuesday’s Asian session, up 0.56% on the day. 
• Trump said new tariffs will target semiconductors, pharmaceuticals and steel.
• The Fed is likely to hold interest rates steady at its January meeting on Wednesday. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, drifts higher to near 107.95, snapping the three-day losing streak during the Asian trading hours on Tuesday. The fresh tariff threats from US President Donald Trump provide some support to the USD broadly. 

Trump said late Monday that he plans to impose tariffs on imported computer chips, pharmaceuticals and steel in an effort to bring production to the United States, boosting the Greenback. This action came after Trump rattled markets by imposing tariffs on Colombia over the weekend before halting the action when the South American nation had agreed to accept military aircraft carrying deported migrants.

Additionally, Trump proposed 25% tariffs on imports from Canada and Mexico, and he threatened to impose taxes on the EU and China on February 1 as well. Investors will closely watch the developments surrounding tariff policies between the US and trading partners. ”Tariffs will remain front and center for the time being, ...especially as we close in on the February 1st deadline for the first round of tariffs," noted Kieran Williams, head of Asia FX at InTouch Capital Markets.

Data released by the Commerce Department's Census Bureau on Monday showed that US New Home Sales rose 3.6% to a seasonally adjusted annual rate of 698,000 units in December from 674,000 units in November. This reading came in above the market consensus of 670,000 units. Later on Tuesday, the US Durable Goods Orders, Conference Board’s Consumer Confidence, and the Richmond Fed Manufacturing Index will be released. 

The US Federal Reserve (Fed) interest rate decision will be in the spotlight on Wednesday, with policymakers likely to keep the benchmark interest rate in the current 4.25%-to-4.50% range. Analysts expected the US central bank to reduce rates again at its March and June meetings, but with any further cuts in doubt as policies on immigration and tariffs could fuel inflation. 

Market players will closely monitor the Press Conference for guidance about the Fed's rate outlook. A hawkish stance of the Fed could lift the USD, while a dovish approach could drag the USD lower against its rivals.