The U.S. dollar's strength is expected to persist, despite potential market volatility, Wells Fargo (NYSE:WFC) strategists wrote in a note.

Market participants are likely to favor the U.S. dollar as a safe haven currency due to ongoing tariff threats. These threats are anticipated to come from the Trump administration, with a particular focus on the European Union (EU), which may affect market sentiment towards risk assets.

The Trump administration is also predicted to push for a universal tariff and additional tariffs on China. Combined with threats aimed at the EU, these measures should encourage investors to continue allocating capital towards the U.S. dollar.

However, the U.S. dollar could also face periods of weakness if Trump continues to negotiate with foreign nations to delay or avoid tariffs. This was evident when the dollar depreciated sharply as tariffs on Mexico and Canada were postponed, and only modest levies were imposed on China.

The ability of the markets to become tired of constant tariff threats, especially those targeting countries with little influence over global financial markets or the economy, is also being closely monitored. If market participants start to ignore these threats due to lack of trade policy changes, this could lead to what is being referred to as 'tariff fatigue'.

In the event of tariff fatigue, the dollar's performance would be more influenced by economic fundamentals such as central bank monetary policy, instead of being driven by headlines. In this scenario, market participants would look for alternative catalysts for foreign exchange markets.