US Trade Policy Uncertainty and Global Currency Impacts: A Deep Dive
The global currency markets are experiencing significant volatility as uncertainty surrounding US trade policy continues to weigh on investor sentiment. The Fear & Greed Index currently sits at 11, indicating extreme fear among market participants as they navigate the complex landscape of tariff negotiations, monetary policy shifts, and geopolitical tensions [1]. This comprehensive analysis examines how US trade policy uncertainty is impacting major currency pairs and what investors should watch in the coming weeks.
EUR/USD: Dollar Weakness Creates Opportunities
The EUR/USD pair has been trading in positive territory, rising for the second consecutive day and approaching 1.1819 as of February 26, 2026 [1]. This upward momentum reflects the ongoing pressure on the US dollar amid uncertainty over US tariff policy, which is eroding confidence in the American currency.
US Trade Representative Jamieson Greer recently stated that tariff rates for individual countries could be increased from the current 10% to 15% or higher, but did not specify the criteria for such changes [1]. This lack of clarity continues to create market volatility as investors struggle to price in potential outcomes.
President Donald Trump adopted a measured tone on tariffs in his annual address to Congress, making it clear that he would not change his strategy despite the Supreme Court's decision to cancel his large-scale "reciprocal" duties [1]. This political backdrop continues to influence currency movements as market participants assess the long-term implications of US trade policy.
Technical Analysis of EUR/USD
On the H4 chart, EUR/USD is forming a consolidation range around 1.1818 [1]. Technical analysts suggest an upward move towards 1.1862 appears likely, with scope for an extension towards 1.1888. This scenario is supported by the MACD indicator, which shows its signal line remaining above zero and pointing higher, reflecting sustained bullish momentum [1].
On the H1 chart, the pair is developing the next upward wave towards 1.1860 [1]. After reaching this level, a pullback towards 1.1818 could follow before a renewed advance continues the upward trend.
ECB Policy and Euro Area Outlook
The European Central Bank's stance on monetary policy is providing additional support for the euro. According to BNY's Head of Markets Macro Strategy Bob Savage, ECB President Christine Lagarde told the European Parliament that the euro area outlook remains subject to significant uncertainty [2].
Lagarde noted that activity is expected to be supported by rising real incomes, a resilient labor market, and increased investment in defense, infrastructure, and digitalization [2]. However, these positive factors are being weighed against higher tariffs, a stronger euro, and geopolitical tensions that are impacting trade.
The ECB projects inflation to stabilize at the 2% target over the medium term, with wage growth expected to moderate to around 3% [2]. Importantly, the ECB will maintain a data-dependent, meeting-by-meeting approach and is not pre-committing to a rate path [2].
Lagarde also emphasized that the ECB is not targeting the euro, focusing instead on the need to anchor inflation expectations through clear communication and improved financial literacy to sustain public trust and policy effectiveness [2].
US Dollar Index: Mixed Performance Amid Uncertainty
The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, has shown mixed performance as investors look beyond US tariff uncertainty [4]. After a weak opening around 97.50, the index has attracted bids and turned slightly positive to near 97.75 during the European trading session on February 26, 2026 [4].
However, the index has also experienced periods of weakness. On February 26, it fell to near 97.50 as White House policy doubts lingered [8]. The index has been extending its losses for the second successive session, trading around 97.50 during the Asian hours on the same day [8].
DBS Group Research economist Philip Wee argues that recent political developments in the United States are creating downside risks for the Dollar [3]. This perspective aligns with the broader market sentiment that views US trade policy uncertainty as a headwind for the greenback.
USD/INR: Indian Rupee Remains Resilient
The Indian Rupee has shown remarkable resilience amid the ongoing US trade policy uncertainty. The USD/INR pair continues to oscillate in a tight range near 91.00 as investors seek clarity on the United States trade policy outlook [5].
This sideways trading pattern suggests that the Indian currency is finding support despite the broader dollar weakness narrative. The stability of the INR reflects India's relatively strong economic fundamentals and the market's expectation that the country may be less directly impacted by US tariff policies compared to other emerging market economies.
NZD/USD: Kiwi Benefits from Dollar Weakness
The New Zealand Dollar has been one of the beneficiaries of the ongoing US dollar weakness. NZD/USD has extended its gains for the third consecutive day, trading around 0.6000 during the Asian hours on February 26, 2026 [6].
The pair appreciates as the US Dollar remains under pressure amid ongoing uncertainty over the White House's economic policies [6]. This upward momentum represents a continuation of the trend observed on February 25, when NZD/USD rose 0.52% on Wednesday, climbing back into the 0.6000 handle after the US Dollar came under broad selling pressure [10].
GBP/USD: Pound Sterling Holds Weekly Gains
The Pound Sterling has also benefited from the US dollar's weakness, holding onto weekly gains around 1.3565 against the US Dollar during the Asian trading session on February 26, 2026 [7]. The GBP/USD pair trades firmly as the US Dollar remains under pressure due to uncertainty surrounding the United States trade policy outlook [7].
This strength in the pound reflects both the weakness in the dollar and relatively positive sentiment towards the UK economy. The pair advanced during the North American session on February 25 as the Greenback remained unchanged amid uncertainty over US trade policies, with investors awaiting results of one of the seven megacap companies after the Wall Street close [11].
USD/JPY: Japanese Yen Strengthens
The Japanese Yen has shown strength against the US Dollar amid the ongoing trade policy uncertainty. The USD/JPY pair drifted lower to near 156.15 during the early Asian session on February 26, 2026 [9]. The US Dollar softens against the Japanese Yen amid US tariff uncertainty [9].
However, the relationship between the yen and dollar has been complex. On February 25, the Japanese Yen plunged against its major currency peers, down 0.6% to near 156.80 against the US Dollar during the European trading session [13]. This volatility reflects the market's uncertainty about the Bank of Japan's monetary policy direction and how it might respond to changing global trade dynamics.
USD/CAD: Oil Prices and Trade Policy Impact
The USD/CAD pair is being influenced by multiple factors, including oil prices and US trade policy. HSBC Global Research views USD/CAD as largely driven by the broader Dollar trend, with the pair trading slightly below levels implied by rate spreads, reflecting Canadian Dollar resilience [12].
Elevated oil prices linked to Middle East tensions are supportive of the Canadian dollar, providing a natural hedge against some of the uncertainty emanating from US trade policy [12]. This dynamic creates a complex trading environment where commodity prices and trade policy concerns are both significant drivers of currency movements.
Legal and Policy Risks for the US Dollar
Commerzbank's Volkmar Baur argues that the shift from IEEPA to Section 122 tariffs leaves the US administration on uncertain legal ground, with potential challenges and repayments ahead [15]. This legal uncertainty adds another layer of complexity to the currency markets as investors assess the potential for policy reversals or modifications.
The legal challenges to US trade policy could create additional volatility in the dollar as courts weigh in on the administration's authority to implement various tariff measures. This uncertainty may continue to weigh on the dollar until there is greater clarity on the legal framework governing US trade policy.
Market Implications and Investment Strategies
The current environment of trade policy uncertainty presents both challenges and opportunities for currency investors. The extreme fear indicated by the Fear & Greed Index suggests that many market participants are adopting a cautious approach, potentially creating opportunities for those willing to take calculated risks [1].
Investors should monitor several key factors in the coming weeks:
- The evolution of US trade policy and any clarification on tariff rates and implementation timelines
- Central bank communications, particularly from the Federal Reserve and ECB, regarding monetary policy responses to trade uncertainty
- Geopolitical developments that could impact trade negotiations or create additional market volatility
- Technical levels in major currency pairs that may signal potential trend reversals or continuation patterns
The current market environment favors currencies from countries with relatively strong economic fundamentals and those less directly exposed to US tariff policies. The resilience of the Indian Rupee and the strength of the New Zealand Dollar exemplify this trend.
Technical Outlook for Major Pairs
HSBC Global Research highlights that EUR/USD has been steady despite EU-US trade uncertainty, with much US policy risk already priced [14]. The bank expects the pair to move back toward the upper end of its recent range without breaking higher [14].
This technical analysis suggests that while the euro may continue to benefit from dollar weakness, significant upside may be limited unless there are material changes in the fundamental drivers of the currency pair.
Conclusion
The uncertainty surrounding US trade policy continues to be a dominant theme in global currency markets, creating a complex environment for investors to navigate. The US Dollar Index's mixed performance, ranging from weakness near 97.50 to modest recoveries near 97.75, reflects the market's struggle to price in the various potential outcomes of ongoing trade negotiations [4][8].
Major currency pairs are responding differently to this uncertainty, with the EUR/USD, GBP/USD, and NZD/USD showing strength against the dollar, while the USD/JPY and USD/INR exhibit more complex patterns [1][6][7][9][10]. The Indian Rupee's resilience and the New Zealand Dollar's gains highlight how currencies from countries with strong fundamentals are finding support even as the dollar faces headwinds.
Looking ahead, investors should remain vigilant about developments in US trade policy, central bank communications, and geopolitical events that could impact currency markets. The extreme fear indicated by market sentiment suggests that significant volatility may persist until there is greater clarity on the direction of US trade policy and its global economic implications.
As Christine Lagarde emphasized, the ECB will maintain a data-dependent approach without pre-committing to a rate path [2]. This flexible stance may provide some stability for the euro, but the currency will remain sensitive to developments in US trade policy and their impact on the global economic outlook.
The current market environment requires careful analysis of both fundamental and technical factors, with particular attention to how different currencies are positioned relative to the evolving trade policy landscape. Successful navigation of this uncertainty will require a balanced approach that considers both the risks and opportunities presented by the ongoing policy developments.