US Dollar turns down as markets await fresh clues from Powell
- The US Dollar Index trades lower near 108.30 as market sentiment remains cautious.
- Trump confirms 25% tariffs on steel and aluminum imports but provides no clear implementation timeline.
- Investors await Powell’s testimony for further clues on the Federal Reserve’s policy outlook.
- US CPI data from January is also due this week.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, is trading softer near 108.30 as investors react to mixed economic data and fresh tariff concerns. Market participants are also turning their focus to Federal Reserve (Fed) Chair Jerome Powell’s upcoming testimony before Congress for guidance on future interest rate policy.
Daily digest market movers: US Dollar weakens as investors assess tariff risks and Powell's testimony
- Trump announces a 25% tariff on steel and aluminum imports, raising concerns over inflation and global trade tensions.
- Gold soars to record highs as safe-haven demand increases amid economic uncertainty and potential trade wars.
- CME FedWatch Tool shows 90% probability of unchanged interest rates at the Fed’s March 19 meeting.
- US 10-year yield rises to 4.50%, recovering from last week's yearly low.
- Markets anticipate Powell’s testimony on Tuesday, expecting insights into future monetary policy and interest rate adjustments.
- Wednesday’s Consumer Price Index (CPI) data from January will also be closely followed by markets.
DXY technical outlook: Bearish bias grows as sellers maintain pressure
The US Dollar Index remains under pressure, struggling to hold above 108.00 as sellers continue to dominate. The Relative Strength Index (RSI) remains below 50, indicating growing bearish momentum, while the DXY holds above the 20-day Simple Moving Average (SMA) at 108.50.
Meanwhile, the Moving Average Convergence Divergence (MACD) indicator continues to show increasing bearish momentum. Sustained selling pressure could lead to a retest of the 107.00 psychological level, with potential downside risks if bearish momentum accelerates.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of 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.
