- The US Dollar rolls off on Tuesday, adding to the already downbeat day on Monday
- Traders are selling the Greenback after US imposing tariffs and, meanwhile, already facing counterattacks from Canada and China.
- The US Dollar Index (DXY) does not find immediate support and could break even lower on Tuesday.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, has breached the 106.00 floor briefly on Tuesday after United States (US) President Donald Trump confirmed that tariffs on Canada, Mexico and China were not being delayed. Markets were still doubting on Monday if President Trump would still allow an extension just before the deadline. However, it was no surprise that the US imposed the earlier committed tariffs.
Meanwhile, Canada and China have already pushed back on the US unilateral tariffs. Later Monday night, Canada’s Prime Minister Justin Trudeau announced retaliatory tariffs on US goods. “Canada will start with 25% tariffs on US imports worth C$30 billion from Tuesday,” read the statement, while tariffs on other C$125 billion of products will come into effect in 21 days.
On early Tuesday, China announced its own levy on US agricultural goods. China’s Commerce Ministry stated that it would impose additional tariffs of up to 15% on imports of key farm products, including chicken, pork, soy and beef from the US. The Ministry said that the tariffs will take effect on March 10.
Daily digest market movers: Just eat it
- United States secretary of the treasury Scott Bessent issued comments that US rates will come back down again and that he is confident Chinese manufacturers will ‘eat’ the tariffs.
- Recent US economic data, while US yields and the US Dollar are rolling off, suggest that the US economy could be heading into a period of slow to negative growth while inflation remains elevated due to tariffs. This is a perfect cocktail for either a recession or stagflation phase in the US economy, Bloomberg reports.
- The TechnoMetrica Institute of Policy and Politics (TIPP) Economic Optimism Index for March is due at 15:00 GMT. Expectations are that sentiment will surge to 53.1, up from 52 in February.
- Near 18:00 GMT, Federal Reserve Bank of Richmond President Thomas Barkin delivers a speech titled “Inflation Then and Now” at the Fredericksburg Regional Alliance in Fredericksburg, United States.
- Around 19:20 GMT, Federal Reserve Bank of New York President John Williams is scheduled to participate in a discussion titled “The Cautious Path for Rate Cuts” at Bloomberg Invest 2025 in New York, United States.
- Equities are facing selling pressure across the board. A broad flight to safe havens is pushing traders into Gold for now.
- The CME Fedwatch Tool projects a 14.4% chance that interest rates will remain at the current range of 4.25%-4.50% in June, with the rest showing a possible rate cut.
- The US 10-year yield trades around 4.13%, further down from last week’s high of 4.574% and flirting with a five-month low.
US Dollar Index Technical Analysis: Hurted
If there is one thing very clear now, it is that both US yields and the US Dollar Index (DXY) are no fans of tariffs. The risk is now that more tariffs could hit from all sides in retaliation, which could hit the US Dollar even more as a stagflation scenario gets underway. With the yield differential between the US and other countries further narrowing, the strength of the Greenback would erode further, and the DXY could even fall back below 105.00 if sentiment continues to pick up in that direction.
On the upside, the 100-day Simple Moving Average (SMA) is the first resistance to watch for any rejection, currently at 106.87. In case the DXY can break above 107.35, the 108.00 round level is coming back in scope, with the 55-day SMA just below it.
On the downside, the 106.00 round level needs to hold as support. In case that big figure snaps, 105.89 and the 200-day SMA at 105.05 could start to be identified as the next levels on the downside.
US Dollar Index: Daily Chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.