US Dollar slips as recession fears and tariff confusion weigh on sentiment
- The US Dollar Index trades near the 99.40 zone after reversing earlier gains during Thursday’s session.
- Traders digest softer unemployment data, Durable Goods surprises, and mixed trade signals from Trump and Bessent.
- DXY remains under pressure below moving averages, with resistance at 100.00 and support around 99.33.
The US Dollar (USD) retreats on Thursday as a cocktail of mixed economic data, dovish Federal Reserve (Fed) signals, and murky US-China tariff messaging unsettles market sentiment. After testing highs near 100.00 early in the day, the US Dollar Index (DXY) reversed course and was last seen drifting around 99.41, down 0.37%.
Investors recalibrated expectations after US President Donald Trump and Treasury Secretary Scott Bessent pushed back against claims of a unilateral tariff cut on Chinese goods. While Trump hinted at potential tariff relief if talks progress, Chinese officials reiterated that no negotiations were currently underway, demanding the removal of reciprocal tariffs before dialogue resumes.
Fed officials added further intrigue. Cleveland Fed President Beth Hammack stressed caution but acknowledged the potential for rate adjustments as early as June. Meanwhile, Governor Christopher Waller warned that firms remain paralyzed by tariff-induced uncertainty, hinting at broader economic spillovers.
Daily digest market movers: US data is getting muddy
- Durable Goods Orders surprised with a 9.2% surge, driven by airplane orders, though core orders remained flat.
- Initial jobless claims rose to 222K; continuing claims dropped to 1.841M, adding mixed labor signals.
- Trump and Bessent reiterated that no unilateral tariff cuts are on the table, with China demanding full tariff removals before talks.
- Fed officials opened the door to rate cuts in June if recession signals intensify, fanning investor hopes for easing.
- US stocks initially surged on optimism before trimming gains; Gold remains elevated above $3,300 as yields fall.
Technical Analysis: DXY slips as momentum fades below 100.00
Technically, the US Dollar Index (DXY) continues to flash bearish signals while hovering around 99.41 in Thursday’s session. Price action remains confined between 99.24 and 99.84 as traders await clearer catalysts. The Relative Strength Index (RSI) stands at 34.62, suggesting neutral momentum, while the Moving Average Convergence Divergence (MACD) maintains a sell signal, reflecting underlying weakness.
Both the Bull Bear Power indicator at −1.63 and the Awesome Oscillator at −3.31 also indicate waning conviction. A deeper look at trend signals reveals a firm bearish setup: the 10-day Exponential Moving Average (EMA) at 100.01 and Simple Moving Average (SMA) at 99.63, alongside the 20, 100, and 200-day SMAs at 101.54, 105.85, and 104.56, respectively, all lean bearish.
Immediate support is noted at 99.34, while resistance is capped at 99.63. A breakout above 100.01 would be needed to reestablish a bullish bias, with the next upside target at 101.10. Until then, the path of least resistance remains to the downside, particularly if trade uncertainty and softening macro data persist.
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.
