The dollar index (DXY00) Monday rose by +0.30% and posted a 1.5-week high. The weakness in stocks on Monday boosted some liquidity demand for the dollar. The dollar extended its gains Monday when President Trump announced plans to hike tariffs on several countries, including Japan, South Korea, Laos, South Africa, Myanmar, and Malaysia, with rates ranging from 25% to 40%, effective August 1. The higher tariffs could boost inflation and prevent the Fed from cutting interest rates, a supportive factor for the dollar.
Gains in the dollar were limited on Monday after President Trump signed the reconciliation bill into law on Friday, when US markets were closed. The nonpartisan Congressional Budget Office estimates that the bill will add $3.4 trillion to US budget deficits over the next decade. The fiscal stimulus from the bill will be a net positive for the US economy, but the higher deficit is negative for the dollar as it increases the risk of an eventual debt crisis in the US and reduces foreign investor confidence in the US.
