US Dollar softens as possible tariff cut and weak PMI weigh on sentiment
- The US Dollar Index trades near 99.50 on Wednesday after erasing earlier gains from Asian hours.
- Mixed PMI data and lack of clarity from Trump’s tariff stance keep USD under pressure.
- MACD prints a sell signal with resistance seen near 99.95 and 100.10; support rests at 98.94.
The US Dollar Index (DXY) failed to hold onto its early strength during Wednesday’s session and now drifts near the 99.50 region, reflecting continued uncertainty around US trade policy and softening business momentum. The Greenback's intraday pop toward 100.00 during Asian trading faded quickly after comments from Treasury Secretary Scott Bessent and renewed scrutiny of President Donald Trump’s policy stance.
In economic data, the flash S&P Global Composite PMI for April fell to 51.2 from 53.5, suggesting slower overall business activity. While the Manufacturing PMI edged up to 50.7, the Services PMI slipped to 51.4 from 54.4 — highlighting waning demand in the services sector. S&P Global’s Chris Williamson noted that growth momentum is clearly weakening, while inflationary pressure remains, posing a challenge to the Federal Reserve’s (Fed) balancing act.
Daily digest market movers: US Dollar drifts lower after PMI data and tariff noise
- Bessent reiterated that tariff negotiations are not imminent and will occur below the Trump-Xi level, adding to uncertainty.
- Despite a modest improvement in factory output, service sector weakness dragged the Composite PMI lower to 51.2.
- Analysts at Standard Chartered warned that tariff revenue would fall well short of funding proposed tax cuts, potentially adding pressure to US interest rates.
- President Trump’s mixed messages about tariffs — initially striking a conciliatory tone before reverting to ambiguity — have confused traders and investors alike.
- Wall Street’s S&P 500 gave up gains following Bessent’s remarks, while the USD trimmed losses with DXY stabilizing around 99.50.
- Speaking on Wednesday, Bessent clarified that President Trump has not offered to unilaterally cut tariffs on Chinese imports.
- He did, however, suggest that neither side views current tariff levels as viable long-term, hinting at a potential mutual reduction.
- Meanwhile, Trump stated he’d be “nice” to China if talks resume, offering lower tariffs as incentive. But the absence of a clear time frame for negotiations has left markets on edge.
Technical analysis: DXY still capped below key averages
From a technical perspective, the US Dollar Index (DXY) maintains a bearish structure while trading near 99.56, registering a marginal daily loss of 0.08%. Price action remains confined between 98.86 and 99.67, reflecting market indecision ahead of upcoming macro data.
Momentum indicators are mixed. The Relative Strength Index (RSI) prints at 34.79, while the Awesome Oscillator at −3.45 is neutral. Meanwhile, the Moving Average Convergence Divergence (MACD) remains in selling territory, reinforcing the near-term downside bias. The Stochastic RSI Fast (3, 3, 14, 14) at 38.59 offers no strong directional cue.
Trend-following indicators continue to pressure the USD. The 10-day Exponential Moving Average (EMA) at 100.10 and Simple Moving Average (SMA) at 99.95 now act as immediate resistance. Further barriers stand at 100.10 and 101.26. On the downside, key support is located at 98.94. A break below this floor could pave the way for a deeper slide toward the mid-97.00 range.
While oversold signals hint at a potential technical bounce, persistent political and fiscal concerns may limit the DXY’s ability to mount a sustained recovery.
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.
Recommended Articles
