- The US Dollar Index recovers earlier losses, stabilizing around 106.50.
- Euro pares gains after CDU leads German elections, easing political uncertainty.
- Markets focus on upcoming US GDP and PCE data later this week.
- US President Donald Trump set to deliver a speech amid growing trade tensions.
The US Dollar Index (DXY), which measures the US Dollar’s (USD) performance against a basket of six major currencies, recovers on Monday after an initial downturn, stabilizing around 106.50. Early losses triggered by upbeat German election results faded as the Christian Democratic Union (CDU) secured a leading position, calming market fears.
Daily digest market movers: US Dollar steadies amid geopolitical and economic developments
- US Dollar Index recovers from Asian losses as German election results ease political concerns.
- Christian Democratic Union (CDU) leads the German elections, dampening Euro rally amid reduced political uncertainty.
- Investors await key US data releases, including Q4 2024 Gross Domestic Product (GDP) on Thursday.
- January Personal Consumption Expenditures (PCE) data set for release on Friday, potentially influencing the inflation outlook.
- Chicago Fed National Activity Index for January due later on Monday, offering insight into economic activity trends.
- US President Donald Trump is expected to speak later today, potentially addressing trade policy and tariffs.
- Tariffs set to take effect over the weekend could weigh on global trade sentiment.
- Personal income and spending data are expected alongside PCE figures for January.
- Q4 GDP figures are anticipated to confirm steady economic growth, supporting a positive outlook for 2025.
DXY technical outlook: Bullish momentum remains fragile
The US Dollar Index is attempting to stabilize around 106.50, with efforts to reclaim the 100-day Simple Moving Average (SMA) at 106.60 underway. Despite a mild rebound, technical indicators remain weak. The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) suggest a continued bearish sentiment, though some recovery signs are emerging. Resistance lies at 107.00, while support remains firm around 106.00. A break above the 106.60 mark would signal a potential shift in momentum, but the bullish push remains fragile for now.
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.
