Dollar Rises Amid Trade Uncertainty and Fed Policy Jitters

The U.S. dollar edges higher as mixed signals on trade talks and Federal Reserve policy leave investors wary. Explore the latest market dynamics and what’s next for global currencies.

Dollar Climbs as Uncertainty Over Trade and Fed Policy Sways Markets

The U.S. dollar found modest strength on Friday, rebounding from earlier losses as traders weighed a complex mix of trade tensions, Federal Reserve policy concerns, and conflicting messages from President Donald Trump. The volatile landscape has kept investors on edge, unsure of how geopolitical wrangling and monetary policy will shape the path ahead for the global economy.

This week’s currency moves reflect broader anxiety over Washington’s economic strategy, with the dollar’s erratic trajectory underscoring how fragile confidence remains amid the noise.

Fed Chair Powell in the Crosshairs as Trump’s Comments Roil Markets

Much of the dollar’s seesaw action this week can be traced back to President Trump’s repeated public interventions into Federal Reserve affairs—a breach of the central bank’s long-valued independence. Early in the week, the dollar slipped sharply after Trump floated the idea of firing Fed Chair Jerome Powell, citing frustration over the pace of interest rate cuts.

But characteristically, Trump reversed course barely a day later, stating he had no such intentions. That abrupt shift sent the dollar surging, erasing earlier losses. These mixed signals have fueled market turbulence, revealing how sensitive currency values remain to Washington’s political drama.

While Trump has long criticized the Fed for what he views as overly tight monetary policy, economists warn that such interference could weaken global faith in U.S. financial leadership. According to a recent Bloomberg survey, 67% of economists believe continued political pressure on the Fed could diminish the dollar’s reserve currency status in the long run.

Trade Deal Hopes Rise and Fall on Unsteady Ground

Beyond monetary policy, the uncertainty surrounding U.S.-China trade relations continues to stir unease. Despite repeated assertions from President Trump that direct negotiations with Beijing are ongoing, Chinese officials pushed back this week, claiming that no formal talks have resumed.

This disconnect between the two largest economies has kept global markets guessing. The dollar index—which measures the greenback against six major currencies—posted only a slight 0.27% weekly gain, although that was enough to snap a four-week losing streak.

Mizuho Bank analysts noted in a research briefing that without clear movement on U.S.-China talks, any sustained dollar rally could be short-lived. “Markets are reacting to sentiment rather than substance,” the note stated, emphasizing how investor confidence hinges on real policy progress rather than political theater.

Asia Trade Talks Show Flickers of Progress

While U.S.-China relations remain murky, Washington appears to be making some headway with key Asian allies. Early rounds of trade negotiations with South Korea and Japan have shown potential, with both sides expressing optimism about reaching agreements before tariff pauses expire this summer.

Following the initial talks, South Korea’s delegation suggested that a preliminary trade package could be drafted ahead of July’s deadline, aiming to avoid a fresh round of tariffs. Meanwhile, Japan’s top negotiators, including Economy Minister Ryosei Akazawa, are scheduled to continue discussions with U.S. Treasury Secretary Scott Bessent next week.

Notably, Japanese Finance Minister Shunichi Suzuki clarified that no currency-related targets were part of the talks, despite earlier accusations from Trump that Tokyo was deliberately weakening the yen to benefit exporters. This reassurance helped stabilize the yen after a week of swings, with the dollar last seen up 0.3% at 143.08 yen.

Yen, Euro, and Swiss Franc React to Dollar’s Fluctuations

The euro and Swiss franc also felt the ripple effects of the dollar’s movements this week. The euro slid 0.3% to $1.1355 on Friday, while sterling eased 0.2% to $1.3314, reflecting broader market uncertainty.

Against the Swiss franc—a traditional haven during periods of global tension—the dollar climbed 4% to 0.8303. Analysts at ING suggested that the franc’s retreat signals a “temporary relaxation of risk-off sentiment,” though they warned that any negative headlines out of Washington or Beijing could quickly reverse that trend.

Japanese Inflation Accelerates as BOJ Holds Steady

Adding another layer of complexity, Japan’s latest inflation figures showed that core consumer prices in Tokyo rose 3.4% year-over-year in April, marking the second straight month of acceleration. This data could influence the Bank of Japan’s approach to interest rates, though Governor Kazuo Ueda reaffirmed on Thursday that rate hikes would only proceed if inflation aligns with the bank’s 2% target sustainably.

For now, the BOJ is widely expected to maintain its current policy stance at the upcoming meeting concluding on May 1. However, Ueda also acknowledged the need to monitor the global fallout from U.S. tariffs and other trade disruptions closely.

Market Analysts Warn of Fragile Optimism

Despite moments of optimism, market observers caution against reading too much into short-term gains. The dollar’s modest weekly rise does little to dispel broader concerns about the economic outlook, especially as fiscal and trade policies remain in flux.

“If the perception spreads that tariff reductions are on the horizon, we could see risk sentiment improve and the dollar rally further,” Mizuho’s currency team noted. “But if even negotiations with close allies like Japan stall, the chances of resolving disputes with China look bleak.”

The lingering uncertainty has kept many investors on the sidelines, waiting for tangible breakthroughs rather than speculative headlines.

Bitcoin Holds Steady as Traditional Markets Sway

Meanwhile, outside the traditional forex space, Bitcoin continued its slow climb, trading near $94,220 on Friday. That level puts the cryptocurrency close to its recent high of $94,489.92, the strongest since early March. Digital assets, often viewed as an alternative in times of geopolitical strife, remain an area of interest for investors wary of conventional currency markets.

Dollar’s Path Tied to Clarity, Not Chaos

The dollar’s latest bounce may offer a reprieve. Still, its long-term strength remains vulnerable to the same forces roiling global markets: erratic political messaging, unresolved trade disputes, and uncertain monetary policy direction.

For the dollar to maintain momentum, investors need more than rhetoric—they need clarity. Whether that comes through concrete progress in trade talks, a stable and independent Federal Reserve, or a clear economic strategy from Washington remains to be seen.

Until then, the greenback’s journey will likely remain as unpredictable as the headlines that drive it.

Source:  (Reuters)

(Disclaimer:  This article is for informational purposes only and does not constitute financial advice. Readers should consult with a qualified financial advisor before making investment decisions.)

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