The DXY Index initially rose on Monday to 97.45 from 96.8, driven by trade tensions stemming from US President Donald Trump’s threat to impose an additional 10% tariff on any country aligning with the “Anti-American” policies of the BRICS. The DXY extended its rise to 97.7 following Trump’s letters to Japan and South Korea, and later to another 12 countries, informing them that the US would impose blanket tariffs close to the April 2 reciprocal tariffs on their exports to the US, effective August 1. However, the DXY eased to 97.45-97.55 upon realisation that letters functioned as conditional extensions of the 90-day tariff pause that was originally set to expire on July 9. Trump effectively extended the negotiating window by another three weeks, allowing countries to reach limited trade deals on America’s terms, with concessionary tariff rates like those offered to Vietnam.
The conditions outlined in the letters were a formal restatement of the demands the Trump administration has been publicly articulating for months. Now put in writing, the letters act as contractual deadlines instead of political rhetoric. They also hardened Trump’s negotiating stance with a tone now direct, bilateral, and framed with final offers with specific consequences. Trump aims to shift the burden of action to foreign governments (“Here are our terms. Accept them or tariffs go up”) and set up a defensive narrative if the higher tariffs are imposed later (“We gave them every chance – even extended the deadline”).
Compared to the 90-day tariff pause on April 9, this shorter 24-day extension to August 1 does not necessarily ease global trade tensions. These written “take it or leave it” letters could be viewed as brinksmanship with compressed timelines, hardened positions, and unclear outcomes that reintroduce uncertainty and volatility. Also, the August 1 deadline is still subject to the legal challenges to the unresolved IEEPA tariffs (with a hearing on July 31). The letters do not resolve trade uncertainty and are likely to reinforce Fed Chair Jerome Powell’s cautious wait-and-see stance, which should be clear in tomorrow’s FOMC minutes for the June 18 meeting. No one expects the Fed to lower rates at the July 30 FOMC meeting.
Overall, we maintain the cautious tone outlined in our write-up yesterday. It remains uncertain if Trump’s letters will yield significantly more trade deals than the handful of minor agreements secured over the past few months. For now, the DXY Index could correct higher within the lower half of its descending price channel to 98.2-98.6 (mid-point) this month, near two resistances marked by its 20- and 50-day moving averages at 97.8 and 99.0, respectively. If trade deals do not appear forthcoming, the correction could be higher towards 100.1-100.6 or the ceiling of the channel.
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