US Dollar Index surges to near 98.00 as traders adopt caution following mixed Fed signals

• US Dollar Index appreciates as traders adopt caution amid mixed signals from Fed officials.
• Fed's Goolsbee rejects the notion that the central bank should lower interest rates to reduce the cost of government debt.
• Trump announced a 35% tariff rate for goods imported from Canada.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, continues to gain ground for the third successive session and is trading at around 97.80 during the early European hours on Friday. Traders remain cautious in response to mixed comments from Federal Reserve officials.

Federal Reserve Bank of Chicago President Austan Goolsbee said late Thursday that he does not support the arguments that the US central bank should cut rates to make government debt cheaper, the mandate is on jobs and prices. Goolsbee highlighted that economic data was solid before the April 2 Liberation Day tariffs.

However, Fed Board of Governors member Christopher Waller reiterated why the central bank should deliver an early rate cut in July. Waller also noted that tariff inflation effects are likely to be short-lived and stipulated that a rate cut here would not be politically motivated.

Furthermore, Fed Bank of San Francisco President Mary Daly supported Fed Waller's comments by mentioning that monetary policy is still restrictive. The economy remains on solid footing, with steady growth, strong job gains, and easing inflation. Given these conditions, the Federal Reserve is well-positioned to restore price stability in a gradual and measured manner, Daly added.

However, market sentiment remains cautious after U.S. President Donald Trump announced a 35% tariff on goods imported from Canada, following a wave of tariff demand letters sent to multiple countries on Wednesday, set to take effect on August 1. Trump also indicated that the European Union (EU) would receive a similar notice outlining new tariff rates "today or tomorrow."

The Federal Open Market Committee (FOMC) Minutes from the June 17-18 meeting, released on Wednesday, indicated that policymakers largely maintained a wait-and-see stance regarding future interest rate decisions.