US Dollar Falls as Markets Turn Risk-On, Tariffs Spark Isolated
Sandip Raj Gupta
10/Jul/2025

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US dollar index falls to 97.3 amid risk-on rally in global equities and commodities
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Treasury yields fall sharply after strong 10-year bond auction; Fed signals rate cut
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Dollar surges over 2% against Brazilian real after Trump imposes 50% import tariffs
The US dollar weakened for the second consecutive session on Thursday, with the Dollar Index (DXY) sliding to around 97.3, as investors rotated into riskier assets amid a global rally in stocks, commodities, and high-yield currencies.
The decline came as US Treasury yields dropped sharply following a strong 10-year bond auction, where demand outpaced expectations, signaling growing investor appetite for safety despite equity euphoria.
Fed Minutes Reinforce Easing Bias
The fall in the greenback was further fueled by the Federal Reserve’s June 17–18 policy meeting minutes, which revealed that a majority of Fed officials were open to cutting rates later in 2025.
The central bank emphasized:
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Rate decisions will be data-dependent
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Recent tariff-driven inflation may be “temporary or modest”
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The path forward hinges on economic outlook and risk assessments
This reaffirmed market expectations of a policy pivot, nudging the dollar lower.
Trump’s Tariff Blitz Reverses Dollar Slide Against Real
Despite the broad weakness, the US dollar surged over 2% against the Brazilian real after President Donald Trump announced a 50% tariff on Brazilian imports, effective August 1. Trump cited an "unfair trade relationship" with Brazil and hinted at further scrutiny if structural imbalances persist.
“Brazil has taken advantage of our openness. This ends now,” Trump declared on Truth Social, sparking immediate FX volatility.
The tariffs target key Brazilian exports such as steel, beef, and ethanol. The real’s decline reflects both trade concerns and capital flight expectations.
More Countries Targeted by New US Tariffs
Trump didn’t stop with Brazil. The White House issued additional tariff notices to eight other countries:
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Philippines
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Brunei
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Moldova
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Algeria
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Iraq
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Libya
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Sri Lanka
These nations face tariffs ranging from 25% to 30%, also effective August 1. Analysts believe the move could signal a return to aggressive trade tactics seen during Trump’s first term.
Markets are watching closely for retaliatory measures or trade deal progress in parallel negotiations with India and the European Union, both of which remain critical to stabilizing global trade flows.
Risk-On Sentiment Dominates FX Markets
The dollar’s broad decline reflects a classic “risk-on” market regime, where:
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Equities and commodities (like oil and metals) rally
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Emerging market currencies see inflows
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Safe-haven assets, including the US dollar and Treasury bonds, come under pressure
In particular:
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The S&P 500 and Nasdaq hit fresh monthly highs
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Gold prices rose amid lower yields
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The euro, yen, and pound sterling all posted modest gains against the dollar
Looking Ahead: Trade Talks and Inflation Data in Focus
Markets are now eyeing two critical developments:
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Progress in US-India and US-EU trade negotiations, which could reshape global trade alignments.
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Upcoming US inflation data, which will influence the Fed’s decision to cut rates later this year.
A cooler-than-expected inflation print could fast-track a rate cut, putting further pressure on the dollar. Conversely, any escalation in trade tensions could provide selective strength to the greenback via flight-to-safety trades.
Conclusion
The US dollar’s two-day slide reflects growing investor appetite for risk, falling Treasury yields, and a clear easing bias from the Federal Reserve. However, Trump’s unexpected tariff announcement on Brazil and eight other countries has added a layer of trade uncertainty, causing selective dollar strength, particularly against the Brazilian real. The next few weeks will be crucial as traders balance monetary policy shifts, geopolitical trade moves, and macroeconomic data to gauge the dollar’s path forward.
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