US Dollar edges higher while markets assess Trump’s latest comments on Ukraine and tariffs
- The US Dollar edges slightly higher on Wednesday, not making any big moves.
- US President Donald Trump adds pharmaceuticals and semiconductors into the tariff family.
- The US Dollar Index (DXY) recovers above 107.00 and is still looking for direction this week.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, edges slightly higher on Wednesday and recovers above the 107.00 level on Wednesday, with traders seeing the DXY well positioned amidst all tariff and geopolitical headlines. Overnight, United States (US) President Donald Trump said that car tariffs will be around 25%, and that pharmaceutical and semiconductor imports will be added to the same scheme by April. President Trump tried to deflect the rather unsuccessful first day of negotiations between Russia and the US officials on a peace deal on Ukraine, lashing out at the latter and retaining that it is Ukraine’s fault a deal has not been made and probably will be difficult to make.
Regarding the economic calendar, all eyes shift to the Federal Open Market Committee (FOMC) Minutes from the Federal Reserve’s (Fed) January policy meeting. The Minutes could provide some support for the US Dollar, which has been softening due to weaker US Yields. A rather hawkish Minutes could jack up US rates again, phase out chances or odds on interest rate cuts for 2025, and see a stronger Greenback as the end result.
Daily digest market movers: Minutes matter
- Weekly Mortgate Applications already fell substantially for this week, dropping 6.6% against last week's performance.
- Before facing the Fed’s latest FOMC Minutes, the focus will first shift to the US housing market at 13:30 GMT.
- January Building Permits are expected to slide to 1.460 million from 1.482 million in December.
- Housing Starts in January are expected to slow down to 1.4 million, coming from 1.499 million.
- At 19:00 GMT, the Federal Reserve will release its January notes from its monetary policy. Any hawkish tilts or undertones could be enough to push back current rate cut expectations for 2025 and could mean a stronger US Dollar in the outcome.
- Equities are flat, with minor gains or losses across the board. The Shanghai Shenzhen Index is an outlier, closing 0.7% higher despite President Trump’s broadening of tariffs to include drugs and chips.
- The CME FedWatch tool shows a 53.5% chance that interest rates will remain unchanged at current levels in June.
- The US 10-year yield is trading around 4.56%, the highest level for this week.
US Dollar Index Technical Analysis: Greenback just does not care
The US Dollar Index (DXY) is barely moving on the recent broadening of US President Donald Trump’s tariffs. The Greenback nearly did not move on the back of it and only started to tick up a little bit on Tuesday when the conclusion came that the first day of talks between Russia and the US officials did not really have any result. With the Fed releasing its January Minutes on Wednesday, maybe that can get the DXY moving in any direction.
On the upside, the previous support at 107.35 has now turned into a firm resistance. Further up, the 55-day SMA at 107.93 must be regained before reclaiming 108.00.
On the downside, look for 106.52 (April 16, 2024, high), 106.51 (100-day SMA), or even 105.89 (resistance in June 2024) as support levels. As the Relative Strength Index (RSI) momentum indicator in the daily chart shows room for more downside, the 200-day SMA at 104.96 could be a possible outcome.
US Dollar Index: Daily Chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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