US Dollar under pressure as credit downgrade and policy uncertainty rattle markets
|- Moody’s downgrades US credit rating to ‘AA1’ from ‘AAA’ amid worsening fiscal outlook.
- Trump claims success in brokering ceasefire talks between Russia and Ukraine.
- Fed officials stress wait-and-see stance; trade policy adds to economic uncertainty.
- DXY holds near 100.30 with summer rate cuts looking increasingly unlikely.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, remains pinned near the 100.30 level to start the week, with bearish sentiment lingering after Moody’s downgraded the US credit rating. The downgrade underscores growing concerns over fiscal deterioration and tariff-induced distortions under US President Donald Trump.
Meanwhile, markets shrugged off Trump’s announcement of renewed Russia-Ukraine ceasefire negotiations. With Federal Reserve (Fed) officials maintaining caution and calling for more clarity before committing to policy changes, the DXY struggles to find upside momentum.
Daily digest market movers: Not before the summer at earliest
- Moody’s cuts US credit rating to ‘AA1’, citing fiscal concerns and weakening macroeconomic metrics under Trump-era tariffs.
- President Trump claims personal success in restarting Russia-Ukraine ceasefire talks; Vatican offers to host negotiations.
- Fed’s Kashkari and Jefferson note significant uncertainty from trade policy, weighing on investment and hiring plans.
- White House advisor Kevin Hassett hints at more bilateral trade deals coming, but details remain sparse.
- Fed Chair Powell expected to speak later this week as markets digest risks to policy efficacy amid yield dislocation.
- Traders remain skeptical of the Greenback’s role as a safe haven with fears of coordinated Asian currency appreciation also building.
- The market sees a 91.6% probability of rates holding at 4.25%–4.50% in June and a 65.1% chance of no change in July.
- However, by September, a cut to 4.00%–4.25% is seen as nearly a coin toss (49.6%). Further easing is expected throughout 2025 and into 2026, potentially reaching 3.25%–3.50% by the end of 2026.
US Dollar Index technical analysis: The Dollar Put just got real
The US Dollar Index is trading near the 100.30 mark with little intraday movement, sitting mid-range between support at 100.06 and resistance at 100.90. The Relative Strength Index (RSI) in the 40s and Commodity Channel Index (CCI) in the 40s both suggest neutral momentum, while the Moving Average Convergence Divergence (MACD) shows a mild buy signal. Momentum (10) hovers near zero, leaning bearish. The 20-day Simple Moving Average (SMA) supports a buy bias, but the 100-day and 200-day Simple Moving Averages, along with the 10-day Exponential Moving Average (EMA) and 10-day Simple Moving Average, all indicate a longer-term sell signal. Resistance is seen at 100.30, 100.57, and 100.58, with key support at 100.10 and 99.94.
On the 4-hour chart, momentum is more clearly negative: the Moving Average Convergence Divergence (MACD) signals sell, Exponential and Simple Moving Averages (10, 20) align bearish, while the Stochastic Oscillator (%K line) remains neutral. A potential revisit of Fibonacci retracement support around 94.19–98.18 cannot be ruled out if sentiment worsens.
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.
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