Market Data 
- The US Dollar in the green on Friday, with traders buying into President Trump’s comments.
- Meanwhile, China came out pushing back against comments as trade talks are underway between the two countries.
- The US Dollar Index remains capped below the 100.00 round level.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, trades slightly higher and turns positive for the week on Friday. Traders are divided, though, after the US and China left contradictory comments on whether trade deal negotiations are taking place. United States (US) President Donald Trump said on Thursday that the US is talking to China, propping up the equity markets higher, and favoring the Greenback’s return.
Additionally, citing sources familiar with the matter, Bloomberg reported on Friday that China is mulling suspending its 125% tariff on some US imports, including medical equipment, ethane and plane leasing. However, China’s Foreign Ministry clarified that “China and the US are not having any consultations or negotiations on tariffs.” When asked about tariff exemptions on some US goods, the Foreign Ministry spokesperson said, “I’m not familiar with specifics, I refer you to competent authorities.”
On the economic calendar front, there is a very light calendar ahead. The Federal Reserve (Fed) has entered its blackout period ahead of its upcoming Federal Open Market Committee (FOMC) meeting on May 7. Meanwhile, this Friday, traders can look at the final April reading for the University of Michigan Consumer Sentiment numbers and inflation expectations.
Daily digest market movers: Trump says talks are there
- Ahead of the US trading session, US President Trump confirmed the US and China are in talks, even confirming to Reuters that Chinese President Xi Jinping has been on the phone with the US president. Trump did not disclose with whom trade talks are taking place. The rumor meanwhile got confirmed by United States Secretary of the Treasury Scott Bessent. Details on the content or when a deal is expected remain sketchy.
- China from their end are still denying talks and demand these unfounded rumors end. In addition, China asks first to see all imposed tariffs being lifted before talks could be considered.
- At 14:00 GMT, the University of Michigan will release its final reading for April.
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- The Consumer Sentiment Index is expected to remain unchanged at 50.8 as in the preliminary reading.
- The 5-year Consumer Inflation Expectations are expected to come in at 4.4%.
- Equities are starting to doubt on the Trump comment as there is no reason why China would deny the news this firmly. European equities are marginally higher, while US futures are turning negative.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in May’s meeting stands at 6.1% against a 95.3% probability of no change. The June meeting still has around a 61.4% chance of a rate cut.
- The US 10-year yields trade around 4.27%, looking for direction as markets face some knee-jerk reactions on the Trump comments.
US Dollar Index Technical Analysis: Minor move on big headline
The US Dollar Index (DXY) might look bullish and set to jump higher once headlines emerge of a possible trade deal between China and the US, as rumors are building up now towards that possibility. However, a big downside risk comes with a potential peace deal between Russia and Ukraine, which would boost the Euro (EUR) and weigh on the DXY. So, there are a lot of moving parts that could outweigh the upside or downside for the US Dollar Index.
On the upside, the DXY’s first resistance comes in at 99.58, where a false break occurred Wednesday and Thursday. Should the US Dollar extend recovery, look for 100.22, which supported the DXY in September 2024, with a break back above the 100.00 round level as a bullish signal of their return. A firm recovery would be a return to 101.90.
On the other hand, the 97.73 support could quickly be tested on any substantial bearish headline. Further below, a relatively thin technical support comes in at 96.94, before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.
US Dollar Index: Daily Chart
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.
