Dollar Index Climbs Amid Fiscal Distress

The dollar index edged higher during Tuesday's European session, trading around 99.14, up roughly a quarter of a percentage point on the day. The price briefly touched an intraday high near 99.25 after 14:00 GMT but failed to break further upward.

**Fiscal distress becomes the core dollar narrative**

The dollar's short-term rebound comes amid deep market concerns over U.S. fiscal health. U.S. federal government debt has surpassed $40 trillion, with interest payments topping $1 trillion. Market reports indicate that the Supreme Court's recent ruling overturning broad import tariff measures has reduced some trade policy uncertainty but has also cut off a key source of tariff revenue for the government and could trigger massive refunds, further worsening the fiscal deficit outlook. Analysts note that rising Treasury yields are pushing up mortgage and auto loan rates, hitting the real economy, making low financing costs a key pillar of the U.S. government's agenda.

**Tariff policy disrupts traditional financing chain**

The "reciprocal tariff" policy is structurally undermining the supply-demand balance of U.S. Treasuries. On one hand, the scale of U.S. Treasury debt maturing this year is expected to exceed $9 trillion, with signs of weak demand for new issuance, forcing primary dealers to absorb large amounts. On the other hand, tariffs aim to reduce trade deficits but directly weaken the willingness and capacity of trade-surplus countries to buy U.S. Treasuries. Xia Chun, chief economist at Shangshan Capital Group, told Xinhua that rising Treasury yields typically should drive the dollar stronger, but the dollar has instead fallen, which is strong evidence of capital outflows from the U.S., as dollar assets shift from a "safe haven" to a "source of risk."

**Short-term rebound vs. long-term pressure**

Despite the dollar index's intraday recovery, market divergence over its outlook is widening. Brian Reiling, head of fixed income strategy at Wells Fargo Investment Institute, warned that as Treasury yields rise, higher borrowing costs across various loans will impact consumers. In this context, while the U.S. Treasury has announced an increase in long-dated Treasury buyback operations to improve market liquidity, analysts generally believe that if Treasury yields continue to surge, it could trigger a chain reaction across the financial system, spilling over into the real economy. The tug-of-war between the dollar's short-term technical correction and structural fiscal risks is expected to continue dominating the market's direction.