- The US Dollar trades sideways, uncertain where to go next.
- US President Trump has paused Mexico and Canada tariffs, while China slaps its own tariffs on US imports.
- The US Dollar Index (DXY) holds ground above 108.00 while looking for direction amidst all these tariff headlines.
The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, is looking bleak on Tuesday after first hitting 109.00 before falling back to the lower 108.37 level in European trading. The DXY trades around 108.50 at the time of writing. Markets are reacting to a mixture of headlines with a sigh of relief from Mexico and Canada, which saw the imposition of US tariffs delayed. Meanwhile, China has retaliated against US President Trump’s tariffs by issuing its own levies over US imported goods.
The economic data calendar is taking its shape in the runup towards Friday’s Nonfarm Payrolls data. The US JOLTS Job Openings report will be released later in the day and could give more insights into the tightness of the labor market. In addition, two Federal Reserve (Fed) speakers, Atlanta Fed President Raphael Bostic and San Francisco Fed President Mary Daly, will speak and might leave comments for markets to consider.
Daily digest market movers: An eye for an eye
- China has announced this Tuesday a 15% levy on less than $5 billion in US energy imports, such as Coal and Liquified Natural Gas (LNG), and a 10% fee on American Oil and agricultural equipment, and it will also investigate Google for alleged antitrust violations, Bloomberg reports. Meanwhile, Canada and Mexico are seeing US-imposed tariffs being delayed thanks to their actions to comply with US President Donald Trump.
- At 15:00 GMT, the monthly Factory Orders for December are due. Expectations are for a further decline of -0.7% from -0.4% in the previous month.
- At the same time, the TechnoMetrica Institute of Policy and Politics (TIPP) will release its monthly Economic Optimism reading for February. The consensus is for an uptick to 53, coming from 51.9.
- The US JOLTS Job Openings for December will be released as well. A small decrease to 8 million job openings is expected, down from 8.098 million in November.
- The Federal Reserve has two speakers lined up as well:
- Atlanta Fed President Raphael Bostic moderates a conversation with Atlanta Mayor Andre Dickens at a National Housing Crisis Task Force meeting at Atlanta at 16:00 GMT.
- San Francisco Fed President Mary Daly will participate in the Walter E. Hoadley Annual Economic Forecast panel, hosted by the Commonwealth Club World Affairs of California at 19:00 GMT.
- Equities are mixed with some minor gains and losses in both European indices and US futures.
- The CME FedWatch tool projects an 86.5% chance of keeping interest rates unchanged in the Fed’s next meeting on March 19.
- The US 10-year yield is trading around 4.585%, up from its fresh yearly low at 4.46% seen Monday.
US Dollar Index Technical Analysis: Financial Markets warfare
The US Dollar Index (DXY) is all over the place, though zooming out, actually going nowhere. A range is defined as 107.00 on the downside and 110.00 on the upside. Expect to see the DXY keeping range trading between these two bigger levels for now.
On the upside, the first barrier at 109.30 (July 14, 2022, high and rising trendline) was briefly surpassed but did not hold on Monday. Once that level is reclaimed, the next level to hit before advancing further remains at 110.79 (September 7, 2022, high).
On the downside, the 55-day Simple Moving Average (SMA) at 107.75 and the October 3, 2023, high at 107.35 acts as a double support to the DXY price. For now, that looks to be holding, though the Relative Strength Index (RSI) still has some room for the downside. Hence, look for 106.52 or even 105.89 as better levels.
US Dollar Index: Daily Chart
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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