US Dollar Index (DXY) hesitates below 97.00 amid the uncertain global trade outlook

• Dollar bulls are hesitating on Tuesday with Trump's chaotic trade policies weighing on risk appetite.
• The US Dollar is behaving as a safe-haven and remains buoyed by higher US yields.
• Concerns about the economic impact of higher import prices might hurt the US Dollar in the long run.
  

The US Dollar jumped on Monday after Trump announced new tariffs on a first batch of countries, but it is struggling to extend gains on Tuesday, despite the ongoing risk aversion, as the outlook of global trade remains highly uncertain.

The US Dollar Index (DXY), which measures the value of the Greenback against a basket of the most traded currencies, appreciated 0.6% on Monday and is now about 1% above the long-term lows hit last week. The Greenback, however, is failing to find significant acceptance above 97.00 on Tuesday, and remains practically flat on the day, wavering near 96.80.

Anxiety about global trade is supporting the US Dollar for now

US President Donald Trump sent letters to a first batch of countries, including Japan and South Korea, basically restoring the tariffs announced on April 2. Trump, however, maintained a high level of uncertainty on the issue, postponing their application until August 1 and keeping the door open to adjustments.

Negotiations with Japan are going on, according to market sources, and recent news points to some advances in talks with the European Union. Market sentiment, however, remains sour as the uncertainty about which countries will be targeted with which tariffs keeps investors on edge.

In this context and in the absence of key macroeconomic releases to divert investors' focus, the risk-off sentiment is pushing US Treasury yields up, which keeps the US Dollar buoyed.

These dynamics, however, might be short-lived. Investors' concerns that higher import prices might drive the US economy into a stagflationary scenario triggered a sharp Dollar depreciation. Trump announced trade tariffs in April. Another such episode should not be discarded if hefty levies are finally settled.