US Dollar steadies while Gold rallies on tariff talk
- The US Dollar trades fairly muted after more tariff comments from US President Donald Trump
- A 25% levy on all steel and aluminum imports from all countries will be applied.
- The US Dollar Index (DXY) is going nowhere and trades around 108.00.
The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, is broadly flat to a touch softer and trades around 108.00 at the time of writing on Monday after again a headline-filled weekend. United States (US) President Donald Trump announced 25% steel and aluminum tariffs for all countries importing into the US. Also, plans for reciprocal tariffs are on the table, which would increase US import duties to match those imposed by the country’s other trading partners.
Besides the tariff headlines, otherwise, it will be a very calm start of the week on the economic calendar. Traders will want to focus on Federal Reserve (Fed) Chair Jerome Powell’s semi-annual testimony at Capitol Hill on Tuesday and Wednesday. Traders will look for fresh clues about the path forward for US monetary policy, while Powell is likely to highlight the resilient economy as a key reason central bankers are in no rush to cut borrowing costs further.
Daily digest market movers: No clear projections
- Besides the headlines from US President Donald Trump on reciprocal tariffs and steel and aluminum import tariffs, no real timelines or dates were given, Bloomberg reports.
- The US Treasury is auctioning a 3-month and a 6-month bill at 16:30 GMT.
- Equities are not impressed by President Trump’s announcement of more tariffs. All major indices are trading in the green on Monday.
- The CME FedWatch tool projects a 93.5% chance that the Fed will keep interest rates unchanged at its next meeting on March 19.
- The US 10-year yield is trading around 4.49%, recovering further from its fresh yearly low of 4.40% printed last week.
US Dollar Index Technical Analysis: No interest
The US Dollar Index (DXY) is not breaking any pots this Monday and is not included in the safe-haven flight away from tariffs. Only Gold looks to be the big winner in this case. Meanwhile, US yields are a touch higher, though not enough to really fuel a stronger US Dollar, while traders are assessing what to do next with all these additional tariff announcements.
On the upside, the first barrier at 109.30 (July 14, 2022, high and rising trendline) was briefly surpassed but did not hold last week. Once that level is reclaimed, the next level to hit before advancing further remains at 110.79 (September 7, 2022, high).
On the downside, the October 3, 2023, high at 107.35 is still acting as strong support after several tests last week. In case more downside occurs, look for 106.52 (April 16, 2024, high) or even 105.98 (resistance in June 2024 and 100-day Simple Moving Average) as better support levels.
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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