US Dollar trims losses after early slide, stagflation worries remain
- The US Dollar Index saw choppy action near the 99 zone in Monday’s session, rebounding from a fresh three-year low.
- Tariff uncertainty, sinking consumer confidence and elevated inflation expectations continue to weigh on sentiment.
- Technical signals remain bearish, with price capped below key resistance at the 101.80–102.20 zone.
The US Dollar Index (DXY) recovered slightly in Monday’s North American session after dropping to its lowest point since 2022. Trading around the 99.60 area, the index attempted to stabilize as investors reacted to signs of rising stagflation risks. The rebound came despite fresh US Dollar (USD) selling pressure that had driven EUR/USD and GBP/USD toward multi-month highs earlier in the day. While the market saw some relief after expanded exemptions on US reciprocal tariffs, concerns over inflation, consumer sentiment, and global trade frictions continued to dominate the landscape. Technically, downside pressure remains intact.
Daily digest market movers: US Dollar rebounds from three-year low
- On Friday, Consumer confidence fell sharply, with the University of Michigan’s index plunging to 50.8 in April, missing forecasts and marking the lowest since June 2022.
- Forward inflation expectations for the next 12 months rose to 6.7%, the highest in years, complicating the Federal Reserve’s policy outlook.
- China imposed new retaliatory tariffs of 125% on US imports after last week’s US escalation; business confidence is expected to suffer.
- The Pound and Euro initially surged, but both EUR/USD and GBP/USD gave back gains as the Greenback showed signs of stabilization into the session close.
- US Commerce officials confirmed new exemptions on electronic imports from reciprocal tariffs, temporarily calming recession fears but increasing policy uncertainty.
Technical analysis
The DXY remains technically fragile despite a mild bounce on Monday. The Moving Average Convergence Divergence (MACD) continues to generate a sell signal, while the Relative Strength Index (RSI) stands at 24.60—neutral but nearing oversold conditions. Price action stayed below all major moving averages, including the 20-day SMA at 103.13, the 100-day SMA at 106.34, and the 200-day SMA at 104.74. Shorter-term indicators like the 10-day Exponential Moving Average at 101.83 and the 10-day SMA at 102.23 also maintain a downward slope. Resistance is seen at 99.88, followed by the key 101.83 and 102.23 levels. The outlook stays bearish while the index fails to reclaim those zones.
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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