The US dollar (DX=F, DX-Y.NYB) is on track to secure its best week since mid-November as a looming tariff deadline pushes the greenback currency to new heights.
The US Dollar Index, which measures the dollar’s value relative to a basket of six foreign currencies — the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc — rose about 0.5% on Friday to rebound from its worst performance in over a year last week.
The index has gained around 8% since its September lows and is up about 5% since Election Day.
The dollar’s price action has largely been driven by two main catalysts: President Trump’s election and the subsequent Republican sweep, along with the recalibration of future Fed easing in the face of strong economic data.
But the unknown of Trump’s tariff policy has been the biggest driver in recent weeks and looks set to remain that way in the months ahead.
“In case there was any lingering doubt, investors are judging tariffs to be a dollar-positive, as we had anticipated,” Capital Economics senior markets economist James Reilly wrote in a note published on Friday.
But “for all the attention tariffs have received in recent months, they are far from priced in,” he warned.
On Friday, the White House reiterated President Trump’s plan to enact 25% tariffs on Mexico and Canada as soon as Saturday, denying an earlier Reuters report that suggested Trump is weighing a tariff plan that includes a delay on implementation by a month.
According to Reilly, elevated volatility in currency markets reflect traders “appear to be bracing for something,” but also said they seem reluctant to take Trump at his word.
“That’s a key reason why we think the dollar still has a bit more upside if, as remains our working assumption for now, a 10% universal tariff and 60% levy on imports from China are imposed around Q2,” he said.