US Dollar losses further ground as tensions with China rise
- The US Dollar Index remains under pressure on Thursday, seen around the 101 area after earlier attempts to rebound faded.
- Fresh tariff hikes and dovish-leaning Fed commentary added to recession and inflation worries, weighing on the Greenback.
- Technical indicators remain broadly bearish, with strong resistance seen near 102.30 and no clear support below the current zone.
The US Dollar Index (DXY) trades near the 101 area in Thursday’s session, falling further after failing to hold recovery momentum from earlier in the week. The move comes as new tariff measures confirmed by the White House send the effective rate on Chinese imports to a staggering 145%. Federal Reserve (Fed) officials, including Presidents Jeff Schmid and Lorie Logan, warned that these trade actions risk worsening inflation and labor market dynamics.
On the technical side, the MACD continues to signal selling pressure, while the Relative Strength Index hovers just above oversold territory. With downside momentum intensifying, the DXY remains vulnerable.
Daily digest market movers: US Dollar slips as Fed flags inflation risks
- The White House confirmed the escalation of tariffs on Chinese goods, lifting the effective rate to 145% while maintaining a 10% baseline for others.
- Fed officials issued strong warnings, highlighting how the surprise tariff surge could drive consumer prices higher and complicate monetary policy decisions.
- Dallas Fed’s Logan said unexpected trade measures could trigger job losses and stoke inflation, forcing the central bank into a defensive posture.
- The latest jobless claims rose slightly to 223K, while continuing claims dropped to 1.85M, offering mixed signals on the labor front.
- Despite recent volatility, Fed policymakers avoided direct mention of March CPI in their latest comments, though markets remain sensitive to inflation prints.
Technical analysis
The US Dollar Index paints a bearish picture as it continues to slide near the lower edge of its daily range around the 101 area. The Moving Average Convergence Divergence (MACD) confirms downward momentum with a sell signal, and the Relative Strength Index (RSI) sits around 29, indicating weak price strength but not yet in deep oversold territory. While the Awesome Oscillator is neutral, Momentum (10) indicates further downside pressure. The bearish tone is reinforced by several downward-sloping moving averages: the 20-day SMA at 103.52, 100-day SMA at 106.48, and 200-day SMA at 104.79. An additional downside could materialize if the index breaks below current levels, while resistance is seen at 102.29, 102.72, and 102.89.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
