Will trade-weighted US dollar index fall below 112 by October 2026?
The Condition
US blanket tariffs (Section 122 or successor authority) of at least 10% remain in effect on July 24, 2026
Our Ensemble Estimates
Given tariffs persist: Will trade-weighted US dollar index fall below 112 by October 2026?
Given tariffs expire: Will trade-weighted US dollar index fall below 112 by October 2026?
Causal Effect
Persistent tariffs increase the probability of dollar decline to 112 by +15 percentage points (48% vs 33%). The causal mechanism runs through reserve currency confidence erosion: Congressional extension of blanket tariffs transforms a temporary emergency measure into a permanent trade regime shift, accelerating capital rotation from US assets and compounding BOJ normalization headwinds. Tariff removal, by contrast, reduces trade uncertainty and historically supports the dollar, partially offsetting structural headwinds. The ensemble identifies the monetary policy channel as a partial offset — tariff removal enables faster Fed cuts which weaken the dollar — but the net effect still favors dollar stability in the no-tariff scenario.
Why This Matters
Tests whether the dollar depreciation trend accelerates if blanket tariffs are maintained. The trade-weighted dollar is at 117.5, already down 7.6% YoY, driven by trade policy de-escalation from IEEPA to the lower Section 122 rate. The global-spillover analysis found asymmetric partner impacts and BOJ normalization as additional dollar headwinds. If blanket tariffs persist through Congressional extension, it would signal an ongoing US trade policy regime that degrades dollar reserve currency confidence. Capital rotation from US assets could accelerate. However, persistent tariffs also support the dollar through terms-of-trade effects (reduced imports). The 112 threshold represents a further 4.7% decline from current levels, breaching a level flagged in the monitoring variables as indicating disorderly decline.
Resolution Criteria
Federal Reserve trade-weighted broad dollar index (FRED series DTWEXBGS) closes at or below 112.0 on any trading day on or before October 31, 2026
Source Analysis
Trade-weighted dollar down 7.6% YoY to 117.5; trade policy de-escalation from IEEPA to Section 122 driving broad-based dollar weakness; fragile tariff-dollar offset equilibrium on import prices