The U.S. dollar index climbed 0.30% to 106.56 on Wednesday, recovering from its lowest level since December 10 as Treasury yields bounced back from recent declines.
That move came even as Treasury Secretary Scott Bessent warned of economic fragility beneath headline metrics. Bessent highlighted interest-rate volatility, persistent inflation and heavy reliance on government-sector job growth as vulnerabilities. He also noted that tariffs remain an important source of revenue, comments that contributed to market uncertainty.
Currency strategists say tariff rhetoric has a nuanced effect on the economy and markets. Thierry Wizman of Macquarie pointed out that even talk of tariffs can slow business activity and exert disinflationary pressure, a dynamic that complicates the Federal Reserve’s decision-making. The Fed must weigh this added uncertainty against the inflationary risk that would come with actual tariff implementation.
Meanwhile, money markets currently price in about 54 basis points of Fed rate cuts by the end of the year — roughly two 25-basis-point reductions and a small chance of an additional cut.