US Dollar softens as Gold slides below $3,200 on risk rebound
- Gold drops to $3,182 amid China trade truce and fading safe-haven demand.
- DXY dips toward 100.60 as CPI miss renews rate cut speculation.
- Fed expected to hold rates steady through summer, first cut seen in September.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, softened near 100.60 on Wednesday as cooler-than-expected inflation and news of ongoing US-South Korea currency discussions pressured the Greenback. Gold extended its sell-off, plunging below $3,200 per ounce for the first time since April 11.
A pause in Chinese ETF demand and positive geopolitical sentiment, including Middle East diplomacy and trade optimism with Asia, triggered a broader shift toward riskier assets. Meanwhile, US yields rose, undermining the appeal of non-yielding Gold despite USD weakness. Traders now look ahead to PPI and Retail Sales data later in the week for further clues on the Fed’s next move.
Daily digest market movers: Where there is smoke...
- Gold breaks below $3,200 per ounce for first time since April 11, driven by improved risk appetite and bearish chart patterns.
- XAU/USD hit $3,182 as Chinese ETF flows halted and optimism over US trade talks with Japan and South Korea weighed on safe-havens.
- US CPI for April came in soft with headline inflation at 2.3% YoY, below expectations, and core inflation steady at 2.8%.
- Fed’s Jefferson said inflation progress continues, but outlook has become uncertain due to potential import tariff shocks.
- Fed Vice Chair reiterates patience, reducing likelihood of three rate cuts in 2025, with markets now pricing just two.
- US 10-year Treasury yields climbed despite soft inflation, reflecting caution on long-term debt stability.
- The Trump administration’s preference for a weaker USD is raising speculation of exchange rate pressures on partners.
- DXY gives up post-China deal gains, now trading near 100.60 after fading bullish momentum and returning bearish appetite.
- Central banks and institutional demand may provide downside protection for Gold, but momentum favors further retreat.
- Positive Russia-Ukraine headlines and US-Middle East diplomacy continue to support broader risk-on tone.
- Currency markets react to reports of US-South Korea exchange rate talks, triggering pressure on the Greenback.
- Market expectations now show a 49.9% chance of a Fed rate cut in September, with rates seen near 3.25%-3.50% by year-end 2026.
US Dollar Index technical analysis: Bears are back
The DXY is exhibiting a bearish signal, trading near 101.00 with minor losses on the day. Price action is currently mid-range between the session low and high of 100.27 and 101.02, respectively. The Relative Strength Index (RSI) hovers near the 50 level, reflecting neutral momentum, while the Moving Average Convergence Divergence (MACD) shows underlying buy pressure.
The Stochastic Relative Strength Index (Fast) remains elevated in the 80s, and the Ultimate Oscillator sits in the 50s, both suggesting neutral dynamics. The Bull and Bear Power indicator hovers near 0, hinting at mild selling bias. While the 20-day Simple Moving Average (SMA) indicates some upside potential, the 30-day and 50-day Exponential Moving Averages (EMAs), along with the 100-day and 200-day SMAs, all lean bearish. Key support levels are noted at 100.68, 100.51 and 100.50, while resistance levels stand at 100.91, 101.42 and 101.87.
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.
