US Dollar slides further as tariff tensions escalate
- DXY extends Monday’s losses, dropping below 106.00 amid trade tensions.
- Canada and China retaliate against US tariffs, increasing economic uncertainty.
- Technical indicators suggest a bearish crossover is forming, which may push the Greenback lower.
The US Dollar Index (DXY), which measures the Greenback's value against six major currencies, suffers another leg lower on Tuesday, adding to Monday’s losses and losing the key support of 106.00. Investors dumped the US Dollar after the US confirmed new tariffs on Canada, Mexico, and China with no last-minute extensions granted. As Canada and China announced countermeasures, further stoking market volatility.
Daily digest market movers: US Dollar tumbles amid tariff battle
- Canada retaliates with 25% tariffs on US goods worth C$30 billion with more to come in three weeks. In line, China pushes back on US tariffs, adding to global trade tensions.
- US Treasury Secretary Scott Bessent reassures that rates will come down and expects Chinese manufacturers to absorb tariffs.
- Locally, after a set of mixed data, concerns rise over stagflation as slowing growth and persistent inflation threaten the US economy.
- Regarding the Federal Reserve’s next steps, the CME FedWatch Tool indicates an increasing probability of a Fed rate cut later this year with investors growing confident of a cut in June.
- Equities trade mixed with uncertainty over tariffs weighing on market sentiment.
DXY technical outlook: Bearish crossover looms as downside pressure builds
The US Dollar Index continues to decline, slipping below both the 20-day and 100-day Simple Moving Averages (SMA), which are on the verge of forming a bearish crossover near 107.00. This pattern could signal further downside momentum for the US Dollar as Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators confirm growing selling pressure.
If the bearish crossover completes, it could open the door for further losses toward the 105.50-105.00 range in the short term. A recovery above 107.00 would be required to shift the near-term outlook back to neutral.
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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