- US Dollar Index recovers slightly but fails to break above 100.23 resistance.
- Trump announces a UK trade deal, but tariffs remain.
- Traders continue to digest Wednesday’s Fed decision.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, trades near 100.00 on Thursday, lifted modestly by upbeat US data and expectations of extended yield differentials. Markets initially cheered news of a US-UK trade deal, though enthusiasm faded as details confirmed tariffs would remain in place.
Daily digest market movers: US Dollar holds ground after muted UK deal
- US President Donald Trump announced a “major” trade deal with the United Kingdom, though key tariffs will remain at 10%, limiting market enthusiasm.
- Investors remain skeptical about progress on China tariffs as Trump shows no intent to ease 145% duties and China delays negotiations.
- Markets await this weekend’s preliminary US-China trade discussions in Switzerland, but both sides are downplaying hopes for rapid breakthroughs.
- The July 9 deadline for the Trump administration’s tariff review approaches with limited new trade agreements signed so far.
- US jobless claims fell to 228,000, beating market expectations and suggesting labor market strength.
- The Bank of England reduced its policy rate by 25 basis points to 4.25%, widening the interest rate gap versus the US and boosting USD demand.
- US Treasury yields remain supported with the 10-year note at 4.345%, ahead of a $39 billion auction and FOMC communication expected next week.
- Risk sentiment improved after equities rallied, with the Dow Jones up over 1.6% as hopes grew for more trade clarity.
- Gold surged to $3,400 per ounce as investors hedged against lingering trade tensions and muted USD upside despite central bank divergence.
- Trump hinted that more trade announcements could come in “weeks,” but offered no timeline for actual agreement signings.
- Fed Chair Jerome Powell’s next speech remains key, with the central bank expected to hold rates steady while inflation remains a concern.
- Markets continue to price in two Fed rate cuts by year-end with the first move projected in July, barring strong inflation surprises.
- Asian currencies remain firm as countries like Singapore and Malaysia tolerate stronger FX to ease trade frictions with the US.
US Dollar Index technical analysis: Not bullish yet
The US Dollar Index (DXY) trades around 100.00 with a modest 0.25% daily gain. Price action remains capped within the 99.61–100.21 range. The Relative Strength Index (RSI) at 45 and the Average Directional Index at 48 both signal neutral momentum.
The Moving Average Convergence Divergence (MACD), however, flashes a buy, while the Ultimate Oscillator also trends neutral at 61.24. Mixed moving average signals highlight indecision: the 20-day Simple Moving Average (SMA) at 99.64 supports buyers, but the 100-day (105.17) and 200-day (104.33) SMAs continue to reflect broader bearish pressure. Key resistance is located at 100.23, 100.86 and 100.91; support lies at 99.83, 99.81 and 99.67.
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.
