Dollar Spikes Higher on Monday
The US Dollar is roaring back this week as markets undergo a violent reaction to news of Trump’s trade tariffs on Mexico, Canada and China. 25% levies on Mexico and Canada along with a 10% tariff on Chinese goods marks the start of Trump’s new trade war. With expectations of further tariffs to be applied against other trading partners, as well as the potential for these initial tariffs to increased, the US Dollar looks poised for further gains near-term.
Trump Trade Impact
Expectations of protectionist trade policy from Trump had been a big driver of the USD rally over Q4. The subsequent absence of any initial action from Trump had fuelled a correction lower in the greenback but with trade actions now underway, USD is bouncing back firmly. Part of the driver behind the move is the expected upward inflationary pressure to come from this new trade war and the impact this will have on Fed monetary policy.
Fed Rate Expectations
The market is currently looking for the Fed to cut rates in June and again in December. However, if these trade tariffs lead to a rise in inflation in coming months, these projections will likely be pushed out, allowing room for USD to push higher still as the market pairs back its Fed rate-cut expectations for the year ahead. Indeed, if Trump pushes on with further tariffs against other trading partners, inflationary risks are likely to balloon, leading to a sharp repricing in the Fed rates outlook.
Technical Views
DXY
The recovery off the 107.24 level is gathering pace now with the DXY retesting the broken bull channel lows and the 109.35 resistance level. Above here, focus is on 110.86 next, in line with rising momentum studies readings. 107.24 remains the key line in the sand with the bull outlook intact while price holds above.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.