Market Data 
- The US Dollar retraces after failing to test 110.00 but remains 0.7% higher intraday.
- Trump imposes 25% tariffs on Canada and 10% on China, sparking concerns over inflation.
- The ISM Manufacturing PMI surpasses expectations, boosting confidence in US economic resilience.
- The DXY Index consolidates above 108.00 as traders digest trade policies and economic data.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, retreats slightly after failing to test the 110.00 level but remains well-supported above 108.00. Investor focus shifts to the latest US tariffs, with President Trump imposing a 25% tariff on Canada and 10% on China. These measures have heightened inflationary concerns, fueling speculation on how the Federal Reserve may respond.
A 25% tariff on Mexico was shelved for one month after Mexican President Claudia Sheinbaum agreed to send 10,000 troops to the US-Mexico border in order to reduce drug smuggling. Both leaders said they would attempt to hammer out a trade deal to forestall the tariffs.
Additionally, January’s ISM Manufacturing PMI exceeded expectations, suggesting continued strength in the US economy and reinforcing the US Dollar’s resilience in global markets.
Daily digest market movers: US Dollar firms as markets assess tariffs and data
- The US Dollar remains elevated as markets digest the impact of Trump’s new tariffs on major trading partners.
- The pause of tariffs on Mexico arrested a global sell-off in financial markets, sparked by his decision to move forward with tariffs on goods from Canada and China.
- Trump also threatens additional tariffs on the European Union, criticizing their trade policies and lack of US imports.
- On the data front, the ISM Manufacturing PMI for January climbed to 50.9 from 49.3, exceeding market expectations of 49.8.
- The Prices Paid Index, a key inflation measure, rose to 54.9 from 52.5, signaling persistent pricing pressure.
- The Employment Index improved to 50.3 from 45.4, indicating stronger labor market conditions in the manufacturing sector.
- The New Orders Index jumped to 55.1, reflecting growing demand and business optimism despite trade tensions.
- The CME FedWatch Tool indicates an 80% probability that the Fed will keep rates steady at the March meeting.
DXY technical outlook: Bulls aim for 110.00 as indicators recover
The US Dollar Index remains supported above 108.00, showing resilience despite retracing from its recent rally. Momentum indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are recovering, suggesting a potential continuation of bullish momentum.
If buying pressure persists, the DXY could attempt to retest 110.00 in the near term. Key resistance lies at 108.80, with additional upside barriers at 109.50. On the downside, support is seen around 107.80, with a break below this level potentially shifting sentiment toward a more corrective phase.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
