Trump Keeps Pushing Dollar to the Upside

The U.S. Dollar Index is rising by 0.32% to 108.39 points, though its strength against the euro remains moderate. The EURUSD is down by 0.23% to 1.03030 as U.S. President Donald Trump continues his pattern of announcing new tariffs every Friday. Over the weekend, these announcements gain momentum, impacting markets on Monday. Last Friday, Trump followed this strategy again, designating U.S. steel and aluminium imports for a new 25% tariff.

Since Monday’s opening, the EURUSD has declined by 0.58% to 1.02698. While this may not seem significant, it marks the third consecutive Monday that the dollar has gained due to tariff-related moves. In late January, the EURUSD was testing the key resistance at 1.04700–1.05700. A successful consolidation above this level could have propelled the euro to the extreme target of 1.09500–1.10500. However, Trump’s consecutive tariff actions—targeting Colombia, China, and now steel and aluminium imports—have significantly boosted the Greenback. With the EU, the UK, pharmaceuticals, and semiconductors still on the table, further tariff-driven dollar strength remains possible.

Despite this, large investors are not heavily betting on a stronger dollar. The WisdomTree Bloomberg US Dollar Bullish Fund (USDU) saw net outflows of $97.41 million in the last week of January and another $6.95 million in early February. While not a definitive trend, this suggests investors are not overly concerned about Trump's tariff threats, possibly assuming many will not materialise or will be short-lived. Meanwhile, Trump claimed to have spoken with China’s leader Xi Jinping last week, though no official talks were reported. If negotiations were to lead to a fair trade agreement, the dollar could weaken sharply.

Investors are also closely watching upcoming U.S. economic data. A mix of PMIs, weak December JOLTs figures, and a strong January jobs report have supported the dollar. This week, inflation data could have a major impact on currency markets. Headline inflation is expected to remain steady at 2.9% YoY, while core inflation (excluding food and energy) is projected to edge down to 3.1% from 3.2%. Producer price index and retail sales data will follow later in the week, with expectations of mild cooling. This outlook generally favours a weaker dollar.

However, Federal Reserve (Fed) Chair Jerome Powell's testimony on Tuesday and Wednesday could shift sentiment. Powell is expected to adopt a hawkish tone to counterbalance Trump's escalating tariff policies, which may provide further support for the dollar.

From a technical perspective, the EURUSD remains positioned for potential upside. The pair entered an upward formation last week, targeting 1.04700–1.05700. A key resistance level at 1.03700–1.03900 must be breached to confirm this scenario, with higher targets of 1.09500–1.10500 in focus if momentum builds.