US Dollar Index steady above 107.00 with traders looking forward to Fed’s Minutes release
- The US Dollar is showing some minor gains on Wednesday.
- US President Donald Trump confirmed broadening the scope of tariffs to imports on pharmaceuticals and semiconductors by April.
- The US Dollar Index (DXY) recovers above 107.00 and is still looking for direction this week.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, gearing up for the Federal Reserve (Fed) Minutes release from its latest monetary policy meeting in January, with traders seeing the DXY well positioned amidst all tariff and geopolitical headlines. Overnight, United States (US) President Donald Trump said that car tariffs will be around 25%, and that pharmaceutical and semiconductor imports will be added to the same scheme by April. President Trump tried to deflect the rather unsuccessful first day of negotiations between Russia and the US officials on a peace deal on Ukraine, lashing out at the latter and retaining that it is Ukraine’s fault a deal has not been made and probably will be difficult to make.
Regarding the economic calendar, all eyes shift to the Federal Open Market Committee (FOMC) Minutes from the Federal Reserve’s (Fed) January policy meeting. The Minutes could provide some support for the US Dollar, which has been softening due to weaker US Yields. A rather hawkish Minutes could jack up US rates again, phase out chances or odds on interest rate cuts for 2025, and see a stronger Greenback as the end result.
Daily digest market movers: Housing cracks
- Weekly Mortgate Applications already fell substantially for this week, dropping 6.6% against last week’s performance.
- Before facing the Fed’s latest FOMC Minutes,some data on the US housing market came out.
- January Building Permits climbed to 1.483 million units, beating the 1.460 million estimate and from 1.482 million in December.
- Housing Starts in January fell to 1.366 million, missing the 1.4 million estimate, coming from 1.499 million.
- At 19:00 GMT, the Federal Reserve will release its January notes from its monetary policy. Any hawkish tilts or undertones could be enough to push back current rate cut expectations for 2025 and could mean a stronger US Dollar in the outcome.
- Equities are not having a very good day and are all in the red across Europe and the US. The Shanghai Shenzhen Index is an outlier, closing 0.7% higher despite President Trump’s broadening of tariffs to include drugs and chips.
- The CME FedWatch tool shows a 53.5% chance that interest rates will remain unchanged at current levels in June.
- The US 10-year yield is trading around 4.56%, near the highest level for this week.
US Dollar Index Technical Analysis: Looking for clues
The US Dollar Index (DXY) is barely moving on the recent broadening of US President Donald Trump’s tariffs. The Greenback nearly did not move on the back of it and only started to tick up a little bit on Tuesday when the conclusion came that the first day of talks between Russia and the US officials did not really have any result. With the Fed releasing its January Minutes on Wednesday, maybe that can get the DXY moving in any direction.
On the upside, the previous support at 107.35 has now turned into a firm resistance. Further up, the 55-day SMA at 107.93 must be regained before reclaiming 108.00.
On the downside, look for 106.52 (April 16, 2024, high), 106.51 (100-day SMA), or even 105.89 (resistance in June 2024) as support levels. As the Relative Strength Index (RSI) momentum indicator in the daily chart shows room for more downside, the 200-day SMA at 104.96 could be a possible outcome.
US Dollar Index: Daily Chart
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.
