US Dollar attempts modest recovery amid Fed independence concerns, growth downgrades
- The US Dollar Index trades around the 98.50 area after rebounding from a three-year low earlier in Tuesday’s session.
- President Trump’s threats to fire Fed Chair Powell continue to undermine confidence in US monetary policy.
- Technical indicators suggest deeply oversold conditions, with resistance near 100.01 and 101.30 limiting upside.
The US Dollar Index (DXY) struggled to extend its bounce on Tuesday, hovering near the 98.50 zone after recovering slightly from the three-year trough of 98.01. The rebound came as markets reopened from the Easter Monday holiday and reassessed the broader macro landscape. However, upside attempts were capped by renewed fears over the Federal Reserve’s (Fed) autonomy following US President Donald Trump’s sustained attacks on Fed Chair Jerome Powell.
Trump’s criticism, calling Powell “a major loser” and threatening to remove him for not cutting rates ,has alarmed investors and dragged on the Greenback’s long-term credibility. These concerns were amplified by White House Economic Adviser Kevin Hassett’s admission that the administration is actively exploring legal avenues to oust Powell. Such developments have shaken the safe-haven status of the USD and added to volatility in US assets.
Daily digest market movers: USD stabilizes, outlook still negative
- EUR/USD and GBP/USD both reversed from multi-year highs as traders booked profits and the DXY stabilized near 98.50.
- The IMF’s outlook highlighted downside risks to global and US growth amid policy unpredictability, while the Richmond Fed Manufacturing Index slid to −13, its lowest level since November.
- Trump’s statements on TruthSocial continued to dominate headlines: he doubled down on Powell criticism and suggested there’s no inflation, contradicting recent Fed commentary.
- Market attention now turns to key US data later this week, including PMI and Durable Goods, while multiple Fed speakers may address the issue of institutional independence.
- Analysts warn that prolonged interference in Fed policy could deepen USD weakness and impair confidence in the US as a reserve-currency anchor.
Technical analysis: DXY battles oversold pressure, but outlook remains fragile
The technical picture remains heavily bearish for the US Dollar Index (DXY), which trades around 98.48 as of Tuesday’s US session. Despite a minor daily gain, the broader structure shows no sign of a lasting recovery. The Relative Strength Index (RSI) prints 25.38, signaling a potential oversold bounce. Similarly, the Williams Percent Range at −91.15 offers a buy signal, although short-term oscillators such as the Stochastic RSI Fast remain neutral.
Momentum continues to favor sellers. The MACD remains firmly in sell mode, and key moving averages reinforce this bias: the 20-day Simple Moving Average (SMA) at 101.96, the 100-day at 105.96, and the 200-day at 104.60 are all trending lower. Additional bearish cues are provided by the 10-day EMA at 100.01 and SMA at 100.17, both acting as key resistance zones.
Immediate support is seen at 98.33. A break below this level could re-expose the 97.73 area. On the topside, 100.01, 100.17, and 101.30 serve as near-term resistance levels. While short-term indicators hint at a bounce, the broader trend remains vulnerable without resolution to ongoing political and economic tensions.
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.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
