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The dollar is finding support from the strength in services but remains capped by broader uncertainty around economic momentum.
Tariff Risk and Fed Caution Shape Outlook
Trump’s potential tariff revisions are a key risk factor. Reports suggest possible exemptions for countries like Canada and a tiered tariff structure, though nothing has been confirmed. This ambiguity is keeping markets risk-averse.
At the same time, the Federal Reserve continues to strike a cautious tone. Governor Adriana Kugler noted inflation progress has slowed, especially due to rising goods prices. Atlanta Fed President Raphael Bostic echoed those concerns, indicating reduced expectations for rate cuts in 2025 as trade-related risks grow.
Together, trade uncertainty and the Fed’s more hawkish posture are limiting downside in the dollar, even as markets lack a strong directional catalyst.
Key Data Ahead: PCE and Trade Developments
All eyes now turn to the upcoming PCE Price Index—the Fed’s preferred inflation gauge—due Friday. A stronger-than-expected print could reinforce the case for holding rates higher for longer.
Meanwhile, any clarity on Trump’s tariff plans will be closely watched. Depending on their scope and scale, the policy shift could either support or undermine the dollar, depending on how markets weigh the economic consequences.
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