USD Stabilizes but Bearish Sentiment Persists Amid Tariff Uncertainty – Scotiabank

USD Stabilizes but Bearish Risks Persist on Trade Concerns – Scotiabank

Dollar Index Holds Ground Near Recent Lows

The US Dollar (USD) is showing mild signs of recovery as the Dollar Index (DXY) stabilizes close to its recent multi-week lows. According to analysts from Scotiabank, broad sentiment around the greenback has calmed, though a bearish bias remains evident in risk reversal pricing.

"The USD will struggle to firm while investors digest the president's tax bill and ongoing trade uncertainty," Scotiabank noted.

Market Mood: Tariff Tensions Keep USD Vulnerable

Monday’s “sell America” tone was felt across Treasury markets and the USD, with a moderate rebound seen early Tuesday. However, investor risk appetite remains cautious as uncertainties surrounding tariff policy and fiscal outlook persist, continuing to weigh on the dollar's upside potential.

Weak ISM Data Reflects Manufacturing Struggles

The ISM Manufacturing PMI for May came in weaker than expected, dropping to 48.5 from April’s 48.7, signaling three consecutive months of contraction. While New Orders (47.6) and Employment (46.8) saw slight gains, the Import Index fell sharply to 39.9, marking a steep monthly decline and underscoring reduced trade activity amid tariff headwinds.

Gold Still Bullish Despite Temporary Pullback

Despite the stabilization in USD, gold remains technically bullish, reflecting investor concerns over economic softness and trade uncertainty.

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