U.S. Dollar Weakens Amid Tariff Turmoil, China Tensions, and Fiscal Concerns

The U.S. dollar started the week on a softer note, retreating from last week’s modest rebound as escalating tariff threats from President Donald Trump and renewed tensions with China cast a shadow over global growth prospects. The dollar index, which tracks the greenback against six major currencies, edged 0.1% lower to 99.283 in early Asian trading on Monday. The decline follows Trump’s Friday announcement of a plan to double existing tariffs on imported steel and aluminum to 50% beginning Wednesday, stoking fears of further economic disruption and higher inflation.

Highlights:

• Dollar index falls to 99.283, down 0.1%

• Trump tariff hike plan revives growth and inflation fears

• Safe-haven yen strengthens as market sentiment sours

• U.S. trade and fiscal uncertainty drag on dollar confidence

China Pushes Back Against U.S. Claims, Vows Retaliation

Adding to market unease, China’s Ministry of Commerce denounced as “groundless” U.S. accusations that Beijing violated an agreement on critical mineral exports. The ministry pledged to take “forceful measures” to protect China’s interests, intensifying speculation about retaliatory trade actions. Treasury Secretary Scott Bessent sought to ease concerns by signaling that a call between President Trump and President Xi Jinping was imminent, stating the dispute “will be ironed out.” Nevertheless, traders braced for further volatility amid lack of clarity on what Beijing’s next steps might be.

Highlights:

• China rejects U.S. mineral violation charges

• Beijing promises unspecified countermeasures

• Treasury Secretary Bessent hints at upcoming Trump-Xi call

• Market reacts cautiously to elevated geopolitical risk

Major Currencies Rise as Dollar Retreats from Recent Gains

In currency markets, the dollar dipped 0.3% to 143.57 yen, reversing part of last week’s 1% rally. The euro inched up 0.1% to $1.1362, while the British pound gained 0.2% to $1.3485. Commodity-linked currencies saw even stronger gains: the Australian dollar rose 0.3% to $0.6453, and the New Zealand dollar climbed 0.4% to $0.5994. The widespread gains against the dollar reflected both profit-taking from last week and renewed fears of a U.S.-led slowdown in global trade.

Highlights:

• Yen strengthens on risk-off mood, dollar slips to 143.57

• Euro, pound, and commodity currencies gain ground

• Broader market sentiment shifts away from dollar assets

• Currency markets remain highly sensitive to trade headlines

Court Drama Adds Complexity to Tariff Trajectory

Legal volatility surrounding the tariffs also contributed to dollar unease. While the U.S. trade court initially blocked many of Trump’s tariff actions on the basis that he exceeded his authority, an appeals court quickly reinstated them temporarily, fueling confusion about the path forward. Analysts pointed out that while the legal system has placed guardrails on presidential power, the administration is signaling it has multiple tools at its disposal to pursue its trade agenda, leaving markets wary of additional shocks.

Highlights:

• Trade court ruling partially blocked Trump tariffs

• Appeals court reinstated levies pending final decision

• White House says it has alternative methods to impose tariffs

• Legal uncertainty adds to investor caution

“Sell America” Sentiment Rises Amid Fiscal Reckoning

Beyond trade, deepening concerns over U.S. fiscal sustainability have helped drive a broader retreat from dollar-denominated assets. The Senate is now weighing Trump’s controversial tax and spending bill, which would add an estimated $3.8 trillion to the U.S. debt over the next decade, pushing the total federal debt to $36.2 trillion. Particular focus is on Section 899, a provision allowing the U.S. to impose taxes on foreign companies from nations with “unfair” tax regimes. Barclays analysts warned this could deter foreign investment and further undermine dollar appeal.

Highlights:

• Trump’s tax and spending bill under Senate scrutiny

• $3.8 trillion in new debt projected over next decade

• Section 899 could target foreign capital inflows

• Analysts warn fiscal outlook may weigh on dollar value

Outlook Remains Murky Despite Bearish Positioning

While sentiment toward the dollar is already significantly bearish, analysts caution that the currency’s path forward remains unpredictable. Goldman Sachs expects a persistent 10% tariff floor to remain in place even if broader trade conflicts ease. The investment bank also warned that if tariffs are blocked, alternative revenue-raising tactics could be even more detrimental to dollar stability. With the Federal Reserve adopting a cautious tone and geopolitical flashpoints mounting, markets are expected to remain volatile and reactive to any shifts in trade or fiscal policy narratives.

Highlights:

• Dollar positioning remains heavily bearish

• Alternative U.S. revenue tools could impact dollar flows

• Goldman Sachs sees persistent tariff baseline

• Volatility expected to continue amid policy uncertainty