US Dollar meets renewed selling pressure as tariffs concerns resurface

• Traders respond to fresh tariffs comments from President Trump, overshadowing improved investor sentiment in equities.
• The Federal Reserve's data-dependent stance remains intact, with market consensus leaning toward a possible June rate cut.
• Bond yields hover around 4.60%, a sharp reduction from last week's highs, reflecting changing risk appetite.
• US economic outperformance persists, yet abrupt policy shifts could dent the Dollar's near-term recovery efforts.

The US Dollar Index (DXY) trades just above 108.00 and flips into losses if more selling pressure arises. Tuesday's trading was quiet as markets are responding to late-Monday comments from United States (US) President Donald Trump about tariffs on its North American neighbours.

Daily digest market movers: USD sees red despite Trump proposing tariffs on Canada and Mexico

• Equities push modestly higher on Tuesday, with European stocks largely unchanged and US futures up around 0.50%.
• US yields sit near 4.60%, well below last week's levels; however, President Trump's sudden trade policy announcements have sparked reversals in currency pairs and risk assets.
• Tariff chatter points to a 25% levy on imports from Canada and Mexico by early February, which immediately pressured the Canadian Dollar (CAD) and Mexican Peso (MXN).
• Strong Dollar narrative endures and many analysts view these trade moves as noise, believing the ongoing rally's core drivers including the US economic dominance and steady Fed policy as major drivers to the upside for the Buck.
• The Federal Reserve (Fed) media blackout precedes Chair Powell's press conference on January 29; the market prices July as the earliest date for a single rate cut, contingent on forthcoming data.
• CME FedWatch Tool suggests a near 55% probability of unchanged rates in May, implying a June rate cut if inflation moderates.

DXY technical outlook: Sellers repel attempt to reclaim 20-day SMA

The US Dollar Index broke beneath its 20-day Simple Moving Average near 108.50 and buyers' efforts to retake that threshold proved unsuccessful. With DXY still hovering around 108.00, a fresh rejection at the 20-day SMA suggests building downside risk. If sellers maintain control, the Greenback could face a deeper pullback despite broader fundamentals pointing to US economic resilience. However, any signs of supportive trade or a shift in Fed expectations might rapidly ignite renewed Dollar demand.