US Dollar lost further ground on trade war concerns
- DXY extends Monday’s losses, dropping below 106.00 amid trade tensions.
- Canada and China retaliate against US tariffs, increasing economic uncertainty.
- Technical indicators suggest a bearish crossover is forming, which may push the Greenback lower.
The US Dollar Index (DXY), which measures the Greenback's value against six major currencies, suffers another leg lower on Tuesday, adding to Monday’s losses and losing the key support of 106.00. Investors dumped the US Dollar after the US confirmed new tariffs on Canada, Mexico, and China with no last-minute extensions granted. As Canada and China announced countermeasures, further stoking market volatility.
Daily digest market movers: US Dollar tumbles amid tariff battle
- Canada retaliates with 25% tariffs on US goods worth C$30 billion with more to come in three weeks. In line, China pushes back on US tariffs, adding to global trade tensions.
- US Treasury Secretary Scott Bessent reassures that rates will come down and expects Chinese manufacturers to absorb tariffs.
- Locally, after a set of mixed data, concerns rise over stagflation as slowing growth and persistent inflation threaten the US economy.
- Regarding the Federal Reserve’s next steps, the CME FedWatch Tool indicates an increasing probability of a Fed rate cut later this year with investors growing confident of a cut in June.
- Equities trade mixed with uncertainty over tariffs weighing on market sentiment.
DXY technical outlook: Bearish crossover looms as downside pressure builds
The US Dollar Index continues to decline, slipping below both the 20-day and 100-day Simple Moving Averages (SMA), which are on the verge of forming a bearish crossover near 107.00. This pattern could signal further downside momentum for the US Dollar as Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators confirm growing selling pressure.
If the bearish crossover completes, it could open the door for further losses toward the 105.50-105.00 range in the short term. A recovery above 107.00 would be required to shift the near-term outlook back to neutral.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
