US Dollar posts small losses amid geopolitical tensions and tariff uncertainties
- The US Dollar Index edges lower around 106.30, with markets awaiting fresh catalysts.
- Trump administration signals tighter tariffs on China and potential third-party restrictions.
- US consumer confidence dips to 98.3, its lowest since June 2024.
- Tariff negotiations with Canada and Mexico remain unresolved.
The US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against a basket of six major currencies, posts small losses and falls to near 106.30 on Tuesday. The US Dollar edges lower amid escalating geopolitical tensions and potential new tariffs targeting China. With the United States (US) President Donald Trump administration signaling possible semiconductor restrictions, traders are cautious and the DXY is hovering just above key support levels, hinting at potential downside risks.
Daily digest market movers: US Dollar steady as tariff tensions rise
- US Dollar Index posts small losses as markets digest potential trade barriers targeting China and third-party nations.
- US Treasury Secretary Scott Bessent reaffirms the role of tariffs as a key funding tool for Trump's economic plans.
- Bessent suggests potential monetary easing alongside fiscal tightening could stabilize Treasury yields.
- US consumer confidence falls to 98.3 in February, its lowest level since June 2024, according to the Conference Board.
- The Present Situation Index drops by 3.4 points to 136.5, indicating declining sentiment toward current economic conditions.
- The Expectations Index slumps by 9.3 points to 72.9, highlighting growing pessimism about income and job prospects.
- Trump Trade Advisor Peter Navarro hints at possible tariff exemptions, softening recent protectionist rhetoric.
- Tariff talks with Canada and Mexico continue, with Trump signaling potential actions if no progress is made.
- A reciprocal tariff on the digital services tax is under consideration, potentially impacting tech-related trade.
- US Q4 GDP data release later this week remains a key focus for market participants.
- December Personal Consumption Expenditures (PCE) data is expected to shed light on inflationary trends.
DXY technical outlook: Bulls struggle as bearish momentum persists
The US Dollar Index remains anchored around 106.35, with attempts to recover the 100-day Simple Moving Average (SMA) at 106.60 falling short. Despite minor recoveries, the technical indicators remain subdued. Both the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) are signaling sustained bearish momentum. Support lies at 106.00, while resistance remains at 107.00. A break below the 106.30 level could confirm a deeper bearish outlook in the short term, with bulls still needing stronger catalysts to regain control.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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