The dollar is holding steady this week as speculation grows about Trump’s tariff threats possibly starting on August 1. While the dollar has gained recently, it still feels the impact of earlier policy changes. Markets are anxious about potential economic declines, but Trump’s tendency to backtrack on bold statements lessens the immediate effects of his threats. The concept of TACO trades suggests that markets have adapted to Trump’s strong language, often predicting milder outcomes. This shift has led to crowded short positions in the dollar, creating a chance for a short squeeze. Since much of the expected impact of tariffs is already priced in, we will have to wait to see if the currency’s value will correct significantly.

Anticipating August Tariff Speculations

As August approaches, uncertainty remains about whether new tariffs will be implemented and how they will influence markets. The dollar is strengthening slightly, which indicates that much of the anticipated decline may have already been absorbed. The USD/JPY is testing levels above 147.00, while the EUR/USD and USD/CAD have shown mixed movements after recent tariff announcements. Overall, there is speculation about a possible stronger correction in the dollar and the stock market. However, current price actions indicate potential shifts in market dynamics in the coming weeks. The earlier discussion illustrates that the US dollar, despite recent strength, is closely linked to changing political signals. Tariff threats have added pressure to markets, but their actual effect is softened by a familiar pattern of bold announcements followed by diluted outcomes. Traders have largely adjusted their expectations, especially concerning short positions in the dollar, creating a market ready for short squeezes if new information breaks this expected pattern. As a result, many traders are hesitant to increase bets against the dollar, particularly with the USD/JPY hovering around 147.00. The market has absorbed much of the current policy noise, and we’ve seen positioning become concentrated. Therefore, if new tariff developments occur, traders could be caught off guard.

Watching Political Rhetoric Versus Policy

Looking forward, timing will be crucial. As significant calendar dates approach, especially if policy announcements start to solidify, price action might become less predictable. If political actions diverge from the usual pattern of threats without follow-through, there could be rapid adjustments in short-term interest rates and currency pairs. Those who have strongly favored weaker-dollar scenarios may face pressure if there’s a sudden influx of investment into the dollar. In derivatives, implied volatility has remained low, but this could change soon. Options pricing indicates that markets are still absorbing information rather than reacting. This leaves plenty of room for repricing, especially if tariffs start to influence forward earnings or corporate guidance more clearly. There are early signs of minor changes in curves and some defensive reallocations, but nothing strongly convincing yet. For us, the focus will be on when political rhetoric turns into actual policy. Current price trends suggest that traders believe little will change in trade flows. If that assumption begins to falter, expect renewed momentum in foreign exchange and interest rates. Order books are still thin around key resistance points for USD/JPY and support levels for EUR/USD. In the meantime, staying flexible will be more beneficial than chasing trades based solely on expected patterns. Liquidity remains uneven, and thematic shifts are happening more rapidly than usual. Positioning data suggests that patience may reward those who avoid making hasty moves in reaction to news. We’ll keep a close eye on any forward guidance that contradicts recent trends. If that happens, high-risk exposures and unhedged directional trades could quickly come undone. These moments—where expectations sharply differ from actions—tend to create stretched market conditions and spikes in volatility. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now