• The US Dollar holds ground after dipping to 97.18 during the Asian trading hours.
• US President Trump posted letters to 14 countries on Monday, warning of new "reciprocal" tariffs, including Japan and South Korea.
• Lingering fiscal concerns and expectations of Fed interest rate cuts continue to weigh on the longer-term outlook for the Greenback.

The US Dollar (USD) is treading water on Tuesday, struggling to hold onto Monday's tariff-driven gains, as market sentiment steadies following an executive order from United States (US) President Donald Trump extending the tariff deadline to August 1 from July 9.

US President Trump posted trade warning letters on his social media platform, Truth Social, late Monday, aimed at 14 countries, including Japan and South Korea. The letters warned of possible new "reciprocal" tariffs taking effect on August 1. The news briefly boosted demand for the US Dollar as investors turned to safe-haven assets. However, with the deadline now pushed back, markets are hoping that there's still time for negotiations, which has caused the US Dollar Index (DXY) to ease slightly on Tuesday.

The US Dollar Index (DXY), which measures the Greenback's value against a basket of six major currencies, is holding firm during the European session after recovering earlier losses from the Asian session. The index marked an intraday low of 97.18 before bouncing back modestly, reflecting a cautious tone in the market as traders await further developments on the tariff front. At the time of writing, the DXY is trading around 97.47.

The delay has also revived familiar skepticism in the market, with some traders referencing the acronym "TACO" - 'Trump Always Chickens Out' - to describe the repeating pattern of tough tariff talk followed by deadline extensions or softer action. This has tempered the initial safe-haven bid for the US Dollar, as investors bet that the extended timeline could lead to deals rather than immediate escalation.

Beyond short-term market moves, the US Dollar remains under pressure due to lingering fiscal uncertainties, rising government debt, and concerns over long-term economic stability. The ballooning US deficit has become a key concern for global investors, with debt levels approaching historic highs. The public share of US debt is nearing $30 trillion, and the 2025 federal deficit is projected to reach almost $2 trillion, raising doubts about the sustainability of the country's fiscal path.

At the same time, Trump's criticism of the Federal Reserve (Fed) and growing expectations for interest rate cuts are adding to the pressure on the Greenback. 30-day Fed funds futures are now pricing in 100 basis points of rate cuts over the next 12 months, according to the CME FedWatch, bringing the expected target range down to the 3.25%-3.50% range.

Market Movers: Tariff talks drive market sentiment as US extends deadline

• The White House sent letters to 14 countries on Monday, warning them about new "reciprocal" tariffs that could take effect on August 1. Some countries were informed that their rates would increase slightly, Japan and Malaysia to 25% (from 24%). Other countries, such as South Korea (25%) and Indonesia (32%), will see no change. Several countries were given lower rates than before: Kazakhstan (25% from 27%), Tunisia (25% from 28%), Bosnia (30% from 35%), Bangladesh and Serbia (35% from 37%), Cambodia (36% from 49%), Laos (40% from 48%), and Myanmar (40% from 44%). South Africa (30%) and Thailand (36%) will keep their current rates. The mixed signals indicate that the US is attempting to exert pressure on trade partners while also leaving room for negotiations before the August 1 deadline.
• The US and European Union (EU) are in active discussions to avoid steep new tariffs, with both sides aiming to reach a deal before the August 1 deadline. Reports suggest the EU did not receive a formal tariff warning letter, raising hopes that Europe may be granted exemptions or lower rates, possibly around 10%. EU Commission President Ursula von der Leyen said she had a "good exchange" with President Trump, while US Treasury Secretary Scott Bessent noted that the US is "close to several deals." The talks come amid concerns that key European exports could face duties as high as 50% if no agreement is reached in time.
• US-India trade talks progress as tariff deadline extended to August 1. The United States has delayed the planned 26% tariffs on Indian exports until August 1, giving both sides more time to finalize a limited trade deal. Negotiations are reportedly focused on sectors such as textiles, leather, and industrial goods, while more sensitive areas, including agriculture and dairy, remain unresolved. Indian officials are hopeful that a "mini-deal" could be announced soon, with reports suggesting an agreement may be reached as early as Tuesday.
• So far, only the UK, Vietnam, and China have reached partial trade agreements. The UK secured a limited deal in June to avoid steep tariffs on steel and aluminum, although some details, such as quotas and rules of origin, are still under discussion. Vietnam agreed to a framework that includes duty-free access for US goods while accepting a 20% tariff on its exports to the US and a 40% transshipment tariff to prevent rerouting of goods. With China, a basic framework was reached in June to scale back certain tariffs, including reduced duties on steel and electronics, along with expanded US access to Chinese rare earths. These three remain the only significant agreements ahead of the August 1 deadline, underscoring the difficulty the US faces in locking in broader deals.
• The US Dollar may remain under pressure in the months ahead as protectionist trade policies continue to weigh on sentiment. Higher US tariffs pose risks to economic growth while pushing inflation higher, complicating the Fed's policy outlook. At the same time, the ongoing trade war is prompting more countries to reassess their reliance on the US economy, potentially accelerating the decline of the US Dollar's role as the world's primary reserve currency. In addition, efforts to narrow the US trade deficit may reduce the global supply of Dollars, limiting the need for foreign investors to recycle those funds into US assets and weakening long-term demand for the Greenback.

Technical Analysis: DXY stabilizes inside falling wedge pattern as momentum shifts

The US Dollar Index (DXY) is showing signs of recovery after briefly breaking below the lower boundary of a falling wedge pattern last week. Following the breakdown, the index found support near 96.50 and has been climbing steadily, reclaiming ground above the lower boundary of the wedge. On Tuesday, the DXY marked an intraday low of 97.18 during Asian trading hours but bounced back during the European session, trading around 97.47 at the time of writing, slightly above the 9-day Exponential Moving Average (EMA) at 97.33. The move back inside the wedge suggests the breakdown may have been a bear trap, and price action now hints at potential consolidation or a bullish reversal if momentum continues to build.

Momentum indicators are beginning to show signs of stabilization. The Relative Strength Index (RSI) has edged up to 42.57, still below the key 50 level but pointing north, while the MACD histogram has just turned slightly positive. The MACD line is attempting to cross above the signal line, indicating that bearish momentum may be fading and bulls may take control.

Immediate support is seen at the daily low of 97.18, followed by Monday's low at 96.89, which aligns closely with the lower boundary of the wedge pattern. On the upside, a daily close above the 97.70 support-turned-resistance would be needed to challenge the wedge top near 98.00, with a confirmed breakout paving the way for a move toward 99.00 in the near term.