US Dollar attempts a rebound but remains weak near yearly lows
- US Dollar Index stabilizes around 106.40, hovering near its lowest levels of 2025.
- Traders anticipate rate cuts, with Fed bets now pricing in two reductions for 2025.
- US President Trump confirms 25% tariffs on Canada, Mexico, and the EU but delays implementation until April.
- Markets await the Personal Consumption Expenditures (PCE) data, the Fed's preferred inflation gauge, on Friday.
The US Dollar Index (DXY), which tracks the performance of the US Dollar against a basket of six major currencies, is attempting a modest recovery on Wednesday but remains near yearly lows at 106.50. Traders continue to weigh increased Federal Reserve (Fed) rate cut expectations and the latest tariff developments from US President Donald Trump.
Daily digest market movers: US Dollar steadies as tariff tensions rise
- The US Dollar stabilizes around 106.40 as traders digest escalating tariff risks and growing Fed rate cut expectations.
- On the tariff front, President Trump confirms 25% tariffs on Canada, Mexico, and the EU but delays their implementation until April.
- On the Fed front, markets now expect two rate cuts in 2025, marking a shift from previous Fed guidance.
- Traders await Friday's Personal Consumption Expenditures (PCE) data, the Fed's preferred inflation gauge.
- Personal income and spending reports due this week could further shape market expectations.
- US Q4 GDP figures will provide insights into the economy’s momentum heading into 2025.
DXY technical outlook: Bulls struggle to gain control
The US Dollar Index is attempting to recover above 106.50, but momentum remains fragile. The 100-day Simple Moving Average (SMA) at 106.60 is proving a key resistance level, with technical indicators still favoring bearish conditions.
The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) both signal persistent downside pressure. If the DXY fails to reclaim 106.60, further declines toward 106.00 could materialize. Bulls need stronger catalysts to regain control, with the 107.00 level serving as the next key upside barrier.
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.