The dollar index continued its upward trajectory, benefiting from escalating trade tensions that pushed Mexico and Canada into negotiations while prompting China’s retaliation. The dollar’s trade-weighted value has surged nearly 6% since September, reaching a two-decade peak last month as markets positioned it as a safe-haven asset amid economic volatility. However, the strong dollar risks tightening financial conditions and widening the trade deficit, potentially slowing U.S. growth.

Euro Recovers from Lows but Faces ECB Policy Risks

EUR/USD rebounded to 1.0353, recovering from a low of 1.0125, but remains within a downtrend. Short-covering helped alleviate oversold conditions, but ECB officials hinting at further easing and renewed dollar strength limit upside potential. Resistance at 1.0361 and 1.0372 could cap further gains.

Yen Supported by Technical Levels, But Risks Remain

USD/JPY traded within a 154.75–155.51 range, finding firm support at 153.37–154.82 but facing downside risks as FX options favor yen calls. A breach of 155.97 could accelerate selling pressure, while EUR/JPY and GBP/JPY mirrored broader yen movements.

Sterling and Aussie Dollar Weighed Down by Trade Tensions

GBP/USD fluctuated between 1.2435–1.2384, briefly rising after Trump paused tariffs on Canada but retreating as new tariffs on China took effect. A YouGov poll showing Reform UK surpassing Labour and the Conservatives added political uncertainty, further weighing on sentiment.

AUD/USD remained near 0.62, pressured by U.S.-China trade concerns. The pair hit 0.6237 before dropping to 0.6171 as new tariffs on Chinese goods were implemented.

Outlook: Dollar Momentum Faces Risks From Trade and Central Banks

The dollar’s seasonal strength in February, safe-haven appeal, and resilient U.S. economic data suggest further gains, but trade tensions with China could introduce volatility.

• EUR/USD: Faces selling pressure unless European economic fundamentals improve or the ECB shifts away from dovish policy.
• USD/JPY: At risk of further declines if sentiment turns risk-off or speculation on BOJ tightening increases.
• GBP/USD: Likely to stay range-bound, with downside risks from political uncertainty and U.S. trade policy.
• AUD/USD: Could break below 0.6089 if trade tensions escalate further.

Markets will remain volatile as traders monitor evolving trade policies and monetary signals for further direction.