- The Greenback back in a weekly loss ahead of the US trading session on Friday.
- Headline risk persists with headlines on the government shutdown and tariff headwinds.
- The US Dollar Index has been limited by the 104.00 hurdle and looks to be closing off the week in a negative tone.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, dips lower again on Friday after a few headlines on tariffs and the US spending bill. The index, which has been limited below the 104.00 hurdle this week, hasn’t moved that much despite rumors of a possible ceasefire deal by Ukraine, the first steps in the German spending plan voting and retaliations from Canada and Europe on US tariffs.
On the economic data front, the final releases are expected later this Friday. The University of Michigan will publish its preliminary consumer sentiment reading for March and the 5-year inflation expectation.
Daily digest market movers: WTO to look into tariffs
- Gold as a safe haven asset has breached the $3,000 mark this Friday in a recession-feared-induced rally where traders are much concerned about economic growth and the tariffs outlook, with reciprocal levies coming into effect in April.
- A government shutdown looks to be avoided after Senate Minority Leader Chuck Schumer is said to back the House-passed funding measure.
- The World Trade Organisation (WTO) has been requested by Canada to look into the possibility US President Donald Trump’s tariffs are illegal, Bloomberg reports.
- At 14:00 GMT, the University of Michigan will release its preliminary reading for March:
- The US Consumer Sentiment Index is expected to decline by 63.1, coming from 64.7.
- The US 5-year Consumer Inflation Expectation has no forecast and was at 3.5% in the final February reading.
- Equities are making another attempt to brush off the negative tone for this week. All indices are up over 0.50% across Europe and in the US.
- The CME Fedwatch Tool projects a 97.0% chance for no interest rate changes in the upcoming Fed meeting on March 19. The chances of a rate cut at the May 7 meeting stand at 32.8% and 78.5% at June’s meeting.
- The US 10-year yield trades around 4.306%, off its near five-month low of 4.10% printed on March 4 and after hitting a five-day high on Thursday.
US Dollar Index Technical Analysis: Hard to read
The US Dollar Index (DXY) shows bearish fatigue after its steep downward correction last week. Volatility in its price action completely eroded, and even the DXY stabilizes on Friday after recovering initial weekly losses. While tensions build-up ahead of reciprocal tariffs taking effect in April, it looks like the US Dollar Index might be on the verge of paring back some of the previous week’s losses when assessing the direction into next week.
Upside risk is a rejection at 104.00 that could result in more downturn. If bulls can avoid that, look for a large sprint higher towards the 105.00 round level, with the 200-day Simple Moving Average (SMA) at 105.02. Once broken through that zone, a string of pivotal levels, such as 105.53 and 105.89, will present as caps.
On the downside, the 103.00 round level could be considered a bearish target in case US yields roll off again, with even 101.90 not unthinkable if markets further capitulate on their long-term US Dollar holdings.
US Dollar Index: Daily Chart
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.
