The U.S. dollar rose on Monday after a recent losing streak, posting some gains that made it recover slightly amid ongoing political and economic moves. The increase came at a sensitive time, as it coincided with a resurgence of interest in the Trump administration’s possible decision to impose new trade tariffs, which worried markets and led to sharp movements in currency markets. In this context, the dollar retreated slightly from its recent peaks, as the dollar index rose 0.1% to 107.310 at 04:35 ET, knowing that it recorded a significant decline during the current week of more than 1%.
Interest in US economic policy directions has been evident in this regard, especially as the Federal Reserve prepares to hold its meeting to determine monetary policy that will directly affect the decisions of investors and financial markets in general. While upcoming decisions may be factors affecting dollar movements, the repercussions of trade decisions that the US administration may take are accelerating the stability of financial markets, which reinforces expectations of continued fluctuation in the movement of the US currency.
Recently, markets have been cautious amid concern that the new tariffs may contribute to increasing trade tensions between the United States and other countries, which may reflect negatively on the US economy in the long run. However, even with these challenges, the dollar has managed to maintain some of its strength against other currencies, driven by market sentiment toward safe-haven U.S. assets in times of political and economic uncertainty.
During the week, the dollar weakened by more than 1%, while its moves remained subject to sharp volatility as uncertainty over the Trump administration’s possible decisions persisted.
Factors affecting the dollar index
The US Dollar Index measures the dollar’s value against six major currencies: the euro, Japanese yen, pound sterling, Canadian dollar, Swedish krona, and Swiss franc. Economic and political factors directly influence the index’s movement, shaping the dollar’s relative value in global markets.
One of the most important factors affecting the dollar index is the monetary policy pursued by the Federal Reserve. When the Federal Reserve raises interest rates, the yield on US bonds increases, making them more attractive to investors. This, in turn, leads to an increase in demand for the dollar, which enhances its value. Conversely, if the Federal Reserve decides to cut interest rates or adopt a loose monetary policy, the dollar could weaken as investors worry about falling yields.
Domestic economic factors such as gross domestic product (GDP) growth, inflation levels, and unemployment rates also significantly affect the dollar index. If the US economic data is strong, this suggests that the economy is growing healthy, boosting confidence in the dollar. Similarly, when inflation rises, the Federal Reserve may take action to raise interest rates to keep prices stable, thereby raising the value of the dollar. In contrast, if the indicators Negative economics, such as higher unemployment or slowing economic growth, could lead to a weaker dollar.
Geopolitical conditions also play an important role in determining the value of the dollar. Major political events such as presidential elections or changes in foreign policy can create uncertainty, affecting confidence in the US currency.
The impact of high bond yields on the US economy
The high yield on government bonds, especially ten-year US Treasuries, is having a significant impact on the US economy in many ways. The bond yield is one of the main indicators monitored by financial markets, investors and economic analysts to assess the health of the economy and monetary policies.
First, when bond yields rise, it means that the US government’s borrowing cost becomes higher. The higher yield reflects an increase in interest rates offered by the government to attract investors to buy bonds. Although the U.S. government remains able to borrow significantly, higher interest rates mean an increase in fiscal burdens on the government as a result of higher funding costs, which could affect the federal budget and increase the deficit.
Second, higher bond yields affect the cost of borrowing for consumers and businesses. Interest rates on personal loans, mortgage loans, and commercial loans often follow government bond yields. So, when the yield on bonds rises, it leads to an increase in the cost of borrowing for the private sector, reducing consumer and investment spending. This effect could lead to a slowdown in economic growth, as loans become more expensive for individuals and businesses, reducing demand for goods and services.
Finally, rising bond yields also point to market expectations of higher interest rates by the Federal Reserve. This could indicate that the US central bank intends to raise interest rates to curb inflation, affecting liquidity in the economy. Raising interest rates reduces the credit available in the economy and increases financing costs, which can lead to a slowdown in overall economic growth.
