US Dollar attempts recovery as tariff pause rumors swirl
- The DXY trades around the 103 zone on Monday, trying to extend Friday’s rebound amid volatile market conditions.
- A report suggesting Trump may pause tariffs briefly lifted sentiment, but a sharp White House denial reversed optimism.
- Resistance sits near 103.75, while 102.50 serves as key support amid mixed technical signals.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is trading near the 103 area on Monday after rebounding on Friday. Market volatility intensified as headlines emerged suggesting a temporary suspension of tariffs by the United States (US), though these were quickly refuted by the White House. While equities and commodities came under pressure, the DXY held onto modest gains. Technical signals remain mixed, with the MACD showing a buy but key moving averages flashing bearish signs.
Daily digest market movers: US Dollar jolted by tariff rumor denial
- Markets initially rallied on reports that the US was considering a 90-day tariff pause for all nations except China, as revealed by National Economic Council (NEC) Director Kevin Hassett.
- The optimism was short-lived after a White House spokesperson dismissed the report as untrue, reigniting safe-haven flows and dragging stocks lower.
- US indexes reversed earlier gains; the Dow dropped over 1.5%, while the S&P 500 and Nasdaq also slipped into red territory by the afternoon.
- Attention is shifting toward Thursday’s Consumer Price Index (CPI) data for March, which could reflect the early effects of current trade policies.
- The White House has touted progress on curbing inflation, particularly in food and energy, but markets remain cautious ahead of the data release.
Technical analysis
The US Dollar Index (DXY) attempts to build on Friday’s bounce, hovering near the top of its daily range. The Moving Average Convergence Divergence (MACD) signals a potential upside push, while the Relative Strength Index (RSI) at 42.80 remains neutral. Despite this, the 20-day, 100-day, and 200-day Simple Moving Averages (SMA), along with the 10-day Exponential Moving Average (EMA), continue to signal downside risk. Momentum indicators are split, with the 10-period Momentum suggesting a buy, but others like the Williams Percent Range indicating neutrality. Resistance levels are seen at 103.52, 103.72, and 103.75, while immediate support is located at 102.51. A rejection at the 103.18 zone last week reinforces that area as a pivotal point to watch.
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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