- The Greenback keeps falling on Thursday as markets choke on Trump’s tariffs implementation.
- President Trump announced a base 10% tariff for all countries exporting goods to the US and additional levies per country.
- The US Dollar Index is hit hard and falls below the 102.00 level and even nears 101.50.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is undergoing another seismic shift again, trading at levels not seen since early October around 101.500 and correcting near 2.00% at the time of writing on Thursday. The US Dollar is being kicked out of portfolios while investors repatriate cash as they sell their stakes in US Equities amidst a harsh correction globally.
Markets are digesting the reciprocal tariffs that were implemented overnight by the United States (US) President Donald Trump, where a global 10% tariff is the minimum base case for the 60 countries that are exporting to the US. From there, all other earlier tariffs remain in place, which means, for example, a total of 54% tariff on China applicable as of this Thursday. Meanwhile, the daily economic calendar continues with the US weekly Jobless Claims, ISM Services print and the Challenger Job Cuts for March to be released.
Daily digest market movers: Data turning further
- Treasury Secretary Scott Bessent commented, after the announcement of reciprocal tariffs by Trump, that tariffs could quickly be lifted or removed if countries bring back their production to the US. Bessent issued a statement as well, saying that it’s best for countries not to retaliate as this could be considered the worst-case scenario if they want to avoid more tariffs.
- The US Challenger Job Cuts for March are seeing further cuts, coming in at 275,240 with the previous release at 172,017.
- The US weekly Jobless Claims data is due. Initial Claims came in stronger at 219,000, beating the 225,000 estimate and coming from 224,000. The Continuing Claims jumped to 1.903 million, higher than the 1.856 million previously.
- At 13:45 GMT, US S&P Global will release the final Services Purchasing Managers’ Index (PMI) reading for March. Expectations are for a steady 54.3.
- At 14:00 GMT, the US Institute for Supply Management (ISM) will release the March Services report:
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- Services PMI is expected to drop to 53.0, coming from 53.5.
- No forecast available for the Employment component with the previous reading at 53.9.
- New Orders has no survey available, it came in at 52.2 previously.
- Prices Paid has no forecast available either, with the previous reading at 62.6.
- Equities are facing sharp corrections on the back of the overnight headlines. European futures are down between 1% and 2%, while US ones are down even more than 4% – for example, the Nasdaq – before the opening bell.
- According to the CME Fedwatch Tool, the probability of interest rates remaining at the current range of 4.25%-4.50% in May’s meeting is 74.7%. For June’s meeting, the odds for borrowing costs being lower stand at 72.5%.
- The US 10-year yields trade around 4.03%, a fresh five-month low as a massive flight to safe haven Bonds is taking place.
US Dollar Index Technical Analysis: No stops along the way
The US Dollar Index (DXY) is finally coming alive after consolidating around the 103.00-104.00 range for nearly a month. With this shock effect in markets, the DXY falls below the 102.00 cushion and tests the support of the 101.90 technical level on Thursday. Once that level breaks, another chunky area will open up for further devaluation of the Greenback, with the 100.00 round level as a downside target.
With the sizable downward move on Thursday, some support levels have turned into resistance. The first level to watch out for comes in at 103.18, which has held as support throughout March. Above there, the 104.00 pivotal level and the 200-day Simple Moving Average (SMA) at 104.90 come into play.
On the downside, 101.90 is the first line of defense, and it should be able to trigger a bounce as the Relative Strength Index (RSI) momentum indicator is issuing warnings of oversold conditions in the daily chart. Maybe not this Thursday, but in the coming days, a break below 101.90 could see a leg lower towards 100.00.
US Dollar Index: Daily Chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.