US Dollar climbs as trade rumors fuel market speculation
- The US Dollar Index (DXY) rises near the 99.65 area as traders react to conflicting US-China trade signals.
- Hopes of tariff relief and Fed rate cuts lift sentiment despite China denying any current negotiations.
- Resistance is seen at 99.92 and 100.95 for the DXY with technical indicators painting a mixed-to-bearish picture.
The US Dollar (USD) strengthens modestly on Friday as investors digest contradictory messaging from the United States and China regarding potential tariff negotiations. While President Donald Trump suggested dialogue is ongoing, Beijing explicitly denied any current talks. This divergence injected volatility into markets, though the Greenback maintained an edge, with the US Dollar Index (DXY) up around 0.37% near the 99.65 zone at the time of writing.
Despite entering a data-light session ahead of the May 7 Federal Open Market Committee (FOMC) meeting, market participants remain focused on potential catalysts. Reports surfaced that China may suspend some tariffs on US goods such as medical equipment, though Chinese officials dismissed any formal engagement on tariff discussions. Simultaneously, Cleveland Fed President Beth Hammack opened the door to a potential rate cut in June, depending on upcoming data.
Daily digest market movers: To talk or not to talk?
- President Trump reiterated that the US is in communication with China on trade, while China denied any active tariff negotiations.
- Bloomberg reported China may lift tariffs on select US goods, but Chinese officials deflected questions on exemptions.
- The Fed is in blackout mode ahead of its next meeting; traders eye final April University of Michigan sentiment and inflation expectations.
- Markets remain torn between optimism for a summer Fed rate cut and the absence of concrete progress on trade talks.
- Meanwhile, a notable rebound in US tariff revenue has supported the Treasury’s fiscal position but remains insufficient to offset the broader costs associated with extending the Tax Cuts and Jobs Act (TJCA).
Technical analysis: DXY eyes resistance near 99.92 amid fading momentum
The US Dollar Index trades on firmer footing near 99.65, but the technical outlook remains fragile. Both the Relative Strength Index (RSI) at 37.10 and the Moving Average Convergence Divergence (MACD) suggest that upside momentum is waning. While the MACD continues to flash a sell signal, the Average Directional Index (ADX) at 54.53 indicates a strong but potentially tiring trend.
Short and long-term moving averages reinforce a bearish stance. The 10-day Exponential Moving Average (EMA) at 99.93 and 30-day EMA at 101.80 both sit above current price levels. The 20-day, 100-day and 200-day Simple Moving Averages (SMA) are at 101.30, 105.78 and 104.53, respectively, also point lower.
Immediate support is marked at 99.55 and 99.49. On the upside, resistance looms at 99.93, with additional hurdles at 100.95 and 101.30. Unless headlines provide clearer direction — particularly on tariffs or central bank action — the DXY may remain range-bound near current levels.
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.