US Dollar under pressure amid US economic recession fears
- The US Dollar trades broadly flat on Monday as traders mull the economic situation in the US.
- Fed Chairman Powell commented on Friday the central bank does not need to make any move right now.
- The US Dollar Index hangs on to 103.50, though it faces concerns from traders.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, trades in a very mixed pattern on Monday and holds above the four-month low of 103.50 set on Friday. Traders are mulling the recent comments from United States (US) President Donald Trump, who commented on the US economy during a Fox News interview over the weekend. The President said the US economy is in a transition period, which comes with a little bit of pain, whilst markets in recent days have questioned if the US economy is not in a recession.
On the economic data front, the focus for this week will be the Consumer Price Index (CPI) data for February on Wednesday. Besides that, it will be a very quiet week on the Federal Reserve (Fed) front as the central bank has started its blackout period ahead of the March 19 meeting.
Traders got to hear from Fed Chairman Jerome Powell on Friday evening. Powell said that the Fed does not need to do anything at this very moment while monitoring incoming data. He also acknowledged the rising economic uncertainties in the US but said they do not need to rush to adjust policy.
Daily digest market movers: A calm start to the week
- It is a very calm start to the week with a near-empty economic calendar. Only the US Treasury will auction a 3-month and a 6-month bill at 15:30 GMT.
- During a Fox News interview over the weekend, US President Donald Trump said the economy faced “a period of transition” as he pressed on with his focus on tariffs and federal job cuts, Bloomberg reports.
- Former Bank of Canada (BoC) and Bank of England (BoE) Governor Mark Carney has won the race to replace Justin Trudeau as the new Canada Prime Minister. The upcoming Prime Minister vowed to win the trade war with President Trump, CNN reported.
- Equities face some Monday gloom and are in the red across the board in China, Europe, and US equity futures ahead of the US trading session.
- The CME Fedwatch Tool projects a 63.0% chance of interest rates kept in the current range of 4.25%-4.50% in the May meeting. Probabilities of interest ates being lower in June stands at 85.8%.
- The US 10-year yield trades around 4.26%, off its near five-month low of 4.10% printed on Tuesday.
US Dollar Index Technical Analysis: Pressured on US economic concerns
The US Dollar Index (DXY) is under pressure and looks for direction on Monday after some headlines about US President Donald Trump over the weekend. Markets are still mulling whether the US economy is or will be in a recession as President Trump powers through with his tariffs and reciprocal levies by April. Should the US Consumer Price Index (CPI) data reveal a substantial resurgence in inflation later this week, recession fears would spark even more.
There is an upside risk at 104.00 for a firm rejection. If bulls can avoid that, look for a large sprint higher towards the 105.00 round level, with the 200-day Simple Moving Average (SMA) at 105.03. Once broken through that zone, a string of pivotal levels, such as 105.53 and 105.89, will present as caps.
On the downside, the 103.00 round level could be considered a bearish target in case US yields roll off again, with even 101.90 not unthinkable if markets further capitulate on their long-term US Dollar holdings.
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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