US Dollar figths back after Fed minutes
- The DXY hovers near the 103 zone during Wednesday’s session after briefly dipping on dovish Fed commentary.
- The release of the Fed minutes and Trump’s surprise tariff pause lifted short-term sentiment but underscored long-term inflation concerns.
- Price action remains below key moving averages; resistance builds near 103.20 while immediate support lies around 101.80.
The US Dollar Index (DXY) trades around the 103 area during Wednesday’s session, stabilizing slightly after recent selling pressure, which took it below 102.00. The minor bounce follows the release of the Federal Reserve’s (Fed) March meeting minutes, where policymakers flagged “difficult tradeoffs” ahead, citing risks of higher inflation paired with slower growth.
President Donald Trump’s abrupt announcement of a 90-day suspension on most tariffs added fuel to the market rally, sending the Dow Jones sharply higher. However, the DXY’s bearish technical profile suggests the recovery may face headwinds, with multiple indicators still flashing warning signs.
Daily digest market movers: US Dollar clings to recovery after Fed signals caution
- The FOMC minutes revealed a broad consensus to hold rates steady due to persistent inflation risks and mounting uncertainty over trade and growth dynamics.
- Participants noted inflation could be stickier than anticipated, with downside risks emerging for the labor market and broader economic activity.
- Fed officials warned that navigating between inflation control and supporting employment may prove increasingly complex if tariffs continue to distort the outlook.
- President Trump announced an immediate suspension of reciprocal and 10% tariffs for 90 days—excluding China—boosting risk appetite across equities.
- Despite optimism, policymakers flagged weakening GDP projections for 2025 and 2026, with the Fed’s baseline outlook still pointing to eventual rate cuts.
Technical analysis
The US Dollar Index remains under pressure even as it attempts to build a floor near the 102 zone. The Moving Average Convergence Divergence (MACD) shows a sell signal, while the Relative Strength Index (RSI) hovers around 40, reflecting a neutral tone. Supporting the bearish case, key moving averages such as the 20-day (103.63), 100-day (106.53), and 200-day (104.81) Simple Moving Averages continue to trend lower. The 10-day Exponential Moving Average and 10-day SMA, both around 103.20–103.38, also reinforce downward pressure. Resistance is found at 102.62, 103.21, and 103.38, while initial support is seen around 101.83. Should this floor break, a deeper retracement toward the psychological 100.00 level could unfold.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
