- The US Dollar Index turns flat ahead of US trading session with euphoria fading on US-UK trade deal.
- CNN reports that 10% tariffs will remain in place for the UK despite its brokered trade deal with the US.
- The US Dollar Index faces a rejection and turns flat below 100.00 ahead of the US trading session this Thursday.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, trades flat and dips back below 100.00 before the upcoming announcement by Donald Trump on a “major trade deal” between the United States (US) and, reportedly, the United Kingdom (UK). The euphoria is fading quick now after CNN reported that the 10% tariff for the UK would remain in place, despite President Trump having announced earlier that the trade deal is comprehensive between the two nations.
The Dollar sprinted higher late Wednesday, fueled by the Fed rate decision and comments from Fed Chairman Jerome Powell. The Fed kept its policy rate unchanged at the 4.25%-4.50% range, as expected, while Fed Chairman Powell kept his wait-and-see approach on rates as uncertainty is high and there are risks for a return of inflation. That means the Fed will not cut anytime soon, making the US Dollar stronger with the yield differential between the US and other countries remaining wider in favor of the Greenback as the high-yielder.
Daily digest market movers: Data ignored
- Several traders and analysts are expressing concerns about the trade deal between the UK and the US. Generally, a solid trade deal on several topics and sectors takes years to negotiate and be ratified by both involved parties’ first. The tail risk here is that this could only be a deal in principle or even a simple exchange of goods without any details or concrete action as of yet, Bloomberg reports. Meanwhile CNN reported as well that the 10% reciprocal tariffs slapped on the UK will remain in place, despite the trade deal.
- The Trump administration is looking into cancelling or ignoring former President Biden’s chip act, which limits US exports of chips from ASML, AMD and Nvidia. The news that the Trump administration is considering overturning the order is seeing a surge in the Nasdaq Futures pre-market.
- President Trump lashed out again at Fed Chairman Powell saying that energy prices and food prices have never been this low and that the Fed is too late in cutting rates while tariff money is pouring into the US, calling Fed Chairman Powell a “fool”, on his Truth Social Network.
- The US weekly Jobless Claims this week saw Initial Claims came in at 228,000, below the expected 230,000 against the previous 241,000. The Continuing Claims fell to 1.879 million, below the expected 1.89 million, from 1.916 million.
- At 14:00 GMT, US President Trump will deliver a speech regarding the expected UK trade deal.
- Equities are starting to turn a little from their peak performance after that CNN headline that UK tariffs will remain in place. European equities are up by 0.5%, US equities are seeing the Nasdaq future up at 1% flat.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in June’s meeting at 20.2%. Further ahead, the July 30 decision sees odds for rates being lower than current levels at 66.4%.
- The US 10-year yields trade around 4.29%, not really moving much after the Fed and trade deal announcements.
US Dollar Index Technical Analysis: Worst deal ever?
The US Dollar Index (DXY) has quickly sprinted back to above 100.00 in a boost of positivity following the trade deal headlines. First, this is one of the smallest trade deals possible because the UK isn’t the main problem for the large US trade deficit in goods. Secondly, a trade deal with still a lot of blanks to get filled in – or a very minor deal on just one sector or one agricultural item – will raise the question of whether the billions in revenue promised by Trump will actually be received.
On the upside, the DXY’s first resistance comes in at 100.22, a level that supported the Index in September 2024. A firm recovery would be a return to 101.90, which acted as a pivotal level throughout December 2023 and as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024.
On the other hand, the 97.73 support could quickly be tested on any substantial bearish headline. Further below, a relatively thin technical support comes in at 96.94 before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.
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.
BRANDED CONTENT
Finding the right broker for your trading strategy is essential, especially when specific features make all the difference. Explore our selection of top brokers, each offering unique advantages to match your needs.
Read the full article here
