US Dollar stuck despite the latest market rout
- The US Dollar trades flat and unfazed by overnight events.
- The Trump administration is trying to corner China further with third-party tariffs and semiconductor restrictions.
- The US Dollar Index (DXY) resides just above important support ahead of more downside.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, trades almost flat around 106.70 at the time of writing on Tuesday while other asset classes are facing big moves. Investors are piling into safe-haven bonds, with US yields dropping lower. Meanwhile, equities are going down with negative performances in all major indices across Asia and Europe, also including US futures.
The rout comes after the US President Donald Trump administration gave more details on its plan to toughen semiconductor restrictions over China. In addition, the United States (US) is asking allied countries to impose tariffs as well on China in order to corner the country. Trump wants to slow down Chinese technological development, Bloomberg reports.
The US economic calendar is starting to bear some interesting data points. The Consumer Confidence for February and the Richmond and Dallas Fed Manufacturing indexes are all leading sentiment indicators that could give some insights about the current US activity. Later in the day, Fed Vice Chair for Supervision Michael Barr, Richmond Fed President Tom Barkin and Dallas Fed President Lorie Logan are set to speak.
Daily digest market movers: As if it is not there
- The Trump administration plans to expand its limitations on China's technological developments, including tougher semiconductor restrictions and pressuring allies to install restrictions on China's chip industry. Trump’s goal is to prevent China from developing a domestic semiconductor industry that could boost its AI and military capabilities, Bloomberg reports.
- At 14:00 GMT, the S&P Case Shiller Home Price Index for December is due. Expectations are for a small rise of 4.5%, from 4.3% in November.
- At 15:00 GMT, some February data is due:
- The US Richmond Fed Manufacturing Index is expected to come in at -2, from -4 previously.
- The US Consumer Confidence will be released, though no forecast is available.
- The US Dallas Fed Manufacturing Business Index has no forecast and printed 14.1 in January.
- At 16:45 GMT, Federal Reserve Vice Chair for Supervision Michael Barr will give a speech on key financial stability issues in New Haven, Connecticut, United States.
- Richmond Fed President Tom Barkin will give a speech called "Inflation Then and Now", followed by a Q&A at an event hosted by the Rotary Club of Richmond, expected around 18:00 GMT.
- At 21:15 GMT, President of the Federal Reserve Bank of Dallas Lorie Logan will close off this Tuesday by speaking on the future of the central bank balance sheet at Bank of England's annual BEAR research conference in London, United Kingdom.
- Equities are in red across the board with Asian markets overall closed down by more than 1%. European equities are struggling and US futures are in the red as well.
- The CME FedWatch tool shows an uptick in chances for an interest rate cut by the Federal Reserve (Fed) in June by 25 basis points (bps), growing to 50.0%, while odds for a rate pause have diminished to only 32.6%, backed by the drop in US yields this Tuesday
- The US 10-year yield trades around 4.34%, further down from last week’s high at 4.574%.
US Dollar Index Technical Analysis: Wind still
The US Dollar Index (DXY) is clearly not included in traders' decisions on the back of comments from US President Donald Trump or his administration. Moves are seen in equities, Gold, and Bonds, while the DXY has become too much of a risk and has been left aside by traders for now.
On the upside, the 100-day Simple Moving Average (SMA) could limit bulls buying the Greenback near 106.68. From there, the next leg could go up to 107.35, a pivotal support from December 2024 and January 2025. In case US yields recover and head higher again, even 107.97 (55-day SMA) could be tested.
On the downside, the 106.52 (April 16, 2024, high) level has seen a false break for now. However, that does mean quite a few stops might have been triggered in the markets, with a few bulls having been washed out of their long US Dollar positions. Another leg lower might be needed to entice those Dollar bulls to reenter at lower levels, near 105.89 or even 105.33.
US Dollar Index: Daily Chart
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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