- The US Dollar trades stronger with geopolitical concerns on the forefront.
- The Greenback appreciates despite a drop in US yields and the Fed’s commitment to cut rates.
- The US Dollar Index tries for a second day in a row to break out of the March low range.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, extends recovery and trades around 104.00 at the time of writing on Friday. The DXY tries to move away from the 2025 low at 103.20 reached on Tuesday, after the Financial Times reported European countries are drawing up plans to take on responsibilities for the continent’s defence from the United States (US), including a pitch to the Trump administration for a managed transfer over the next five to 10 years, which would reshape the North Atlantic Treaty Organisation (NATO). The European bloc wants to avoid a disorganised exit from the US in the treaty.
Meanwhile, pressure is mounting with April 2 as the deadline for the US to impose reciprocal tariffs. Several traders and analysts are trying to grasp the impact the tariffs might have on markets, though for now, this remains unclear. US Federal Reserve (Fed) Chairman Jerome Powell said in the press conference following the latest Fed meeting on Wednesday that levies should have a transitory effect on inflation.
Markets seem to believe those words, however, traders remain doubtful. The last time Powell said effects were transitory, the Fed had to hike from 0.25% to 5.5% its policy rate in the post-covid era when inflation appeared to be sticky, not transitory. It took the central bank more than a year to confirm that.
Daily digest market movers:
- This Friday will be marked as Quadruple Witching day. Quadruple Witching is an event in financial markets when four different sets of futures and options expire on the same day, and investors need to decide whether to sell and buy back their positions or just sell them.
- At 13:05, Federal Reserve Bank of New York President John Williams delivered keynote remarks at the 2nd Biennial Macroeconometric Caribbean Conference in Nassau, Bahamas.Fed’s Williams said neutral rates are the best position right now to assess the impact of tariffs.
- At 15:00 GMT, US President Donald Trump will give a speech from the Oval Office.
- Equities are dropping lower on Friday. In China, the Hang Seng and the Shanghai Shenzhen indexes both dropped over 1.50%. This fueled another rout in European and US equities, which are also down over 1%. Concerns are mounting as US corporate profit earnings look bleak, and several central banks – including the Federal Reserve, the Bank of Japan and the Bank of England – have expressed uncertainty about the economy due to tariffs, affecting their policy-making.
- According to the CME Fedwatch Tool, the probability of interest rates remaining at the current range of 4.25%-4.50% in May’s meeting is at 83.1%. For June, the odds for borrowing costs being lower stand at 70.0%.
- The US 10-year yield trades around 4.20%, heading back to its five-month low of 4.10% printed on March 4.
US Dollar Index Technical Analysis: Bleak outlook
The US Dollar Index (DXY) is ticking up for a third day in a row and is already trading positive for this week’s performance. The seismic shift that materialised at the start of March is still present. With the US reciprocal tariff deadline on April 2 approaching, either a full swing trade back to 106.82 or another leg lower towards 101.90 or even 100.62 could occur as markets are having a hard time reading and understanding the possible effects of these tariffs on the global economy.
Should the DXY close above 104.00 this week, a large sprint higher towards the 105.00 round level could happen, with the 200-day Simple Moving Average (SMA) converging at that point and reinforcing this area as a strong resistance. Once broken through that zone, a string of pivotal levels, such as 105.53 and 105.89, could limit the upward momentum.
On the downside, the 103.00 round level could be considered a bearish target in case US yields roll off further on deteriorating US data, with even 101.90 on the table 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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