- The US Dollar retraces after failing to test 110.00 but remains 0.7% higher intraday.
- Trump imposes 25% tariffs on Canada and 10% on China, sparking concerns over inflation.
- The ISM Manufacturing PMI surpasses expectations, boosting confidence in US economic resilience.
- The DXY Index consolidates above 108.00 as traders digest trade policies and economic data.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, retreats slightly after failing to test the 110.00 level but remains well-supported above 108.00. Investor focus shifts to the latest US tariffs, with President Trump imposing a 25% tariff on Canada and 10% on China. These measures have heightened inflationary concerns, fueling speculation on how the Federal Reserve may respond.
A 25% tariff on Mexico was shelved for one month after Mexican President Claudia Sheinbaum agreed to send 10,000 troops to the US-Mexico border in order to reduce drug smuggling. Both leaders said they would attempt to hammer out a trade deal to forestall the tariffs.
Additionally, January’s ISM Manufacturing PMI exceeded expectations, suggesting continued strength in the US economy and reinforcing the US Dollar’s resilience in global markets.
Daily digest market movers: US Dollar firms as markets assess tariffs and data
- The US Dollar remains elevated as markets digest the impact of Trump’s new tariffs on major trading partners.
- The pause of tariffs on Mexico arrested a global sell-off in financial markets, sparked by his decision to move forward with tariffs on goods from Canada and China.
- Trump also threatens additional tariffs on the European Union, criticizing their trade policies and lack of US imports.
- On the data front, the ISM Manufacturing PMI for January climbed to 50.9 from 49.3, exceeding market expectations of 49.8.
- The Prices Paid Index, a key inflation measure, rose to 54.9 from 52.5, signaling persistent pricing pressure.
- The Employment Index improved to 50.3 from 45.4, indicating stronger labor market conditions in the manufacturing sector.
- The New Orders Index jumped to 55.1, reflecting growing demand and business optimism despite trade tensions.
- The CME FedWatch Tool indicates an 80% probability that the Fed will keep rates steady at the March meeting.
DXY technical outlook: Bulls aim for 110.00 as indicators recover
The US Dollar Index remains supported above 108.00, showing resilience despite retracing from its recent rally. Momentum indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are recovering, suggesting a potential continuation of bullish momentum.
If buying pressure persists, the DXY could attempt to retest 110.00 in the near term. Key resistance lies at 108.80, with additional upside barriers at 109.50. On the downside, support is seen around 107.80, with a break below this level potentially shifting sentiment toward a more corrective phase.
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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