US Dollar extends losses on tariff jitters, CPI looms
- DXY plunges as US-Canada trade dispute escalates.
- US equities retreat, Dow Jones down over 1%.
- DXY dips below 103.50, with markets eyeing further downside.
The US Dollar (DXY) continues its downward spiral on Tuesday, with DXY hovering near 103.40 as trade tensions escalate. United States (US) President Donald Trump’s decision to hike tariffs on Canadian steel and aluminum to 50% rattled markets, adding further pressure on the Greenback. Meanwhile, in Europe, Germany’s Green coalition voiced support for a defense spending bill, providing an additional boost to the Euro (EUR). US equities erased earlier gains, with the Dow Jones down over 1%, reflecting broader market concerns.
Daily digest market movers: Trade dispute and policy shifts
- The US-Canada trade rift intensified as President Trump moved forward with a sharp increase in tariffs on Canadian steel and aluminum, hitting 50%.
- Germany’s Green coalition reaffirmed its commitment to a defense spending bill, reinforcing the Euro’s strength against the US Dollar.
- The NFIB Business Optimism Index for February fell short, coming in at 100.7, down from the previous 102.8 reading.
- The CME FedWatch Tool indicates a near certainty that rates will remain unchanged in the March 19 meeting, while the probability of a rate cut in May has climbed significantly.
DXY Technical Outlook: Multi-month lows as indicators signal oversold conditions
The US Dollar Index (DXY) sinks further, slipping below the key 103.50 level, marking its lowest level since October 2024. The 20-day and 100-day Simple Moving Averages (SMA) continue their bearish crossover, reinforcing negative momentum. The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) both indicate oversold conditions, suggesting a possible short-term rebound. However, if 103.30 support fails to hold, the next downside target sits near 103.00.
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.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
