The US dollar index stalls as markets cultivate Trump’s tariff threat and independence.
The US dollar depends on the release of bank revenues and US economic data on Tuesday.
DXY’s price action remains under pressure at 98.00 with increased psychological resistance.
The US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against several major currencies, was experiencing some pressure at the start of the week, trading under the 98.00 mark on Monday.
This followed new geopolitical tensions after President Donald Trump announced potential tariff threats directed at the European Union and Mexico over the weekend.
Additionally, there are reports that Trump has been urging Federal Reserve Chairman Jerome Powell to resign, raising new concerns regarding the independence of the central bank.
On Tuesday, the June Consumer Price Index (CPI) was set to be released, which should give a clearer picture of inflation in the US. The data—whether it shows sustained inflation or a decline—will likely play a significant role in shaping expectations for Federal Reserve policy and, consequently, the direction of the DXY.
In the meantime, several major US banks are about to kick off their second quarter earnings reports, including JPMorgan Chase, Citigroup, Wells Fargo, and BlackRock. These results could provide valuable insights into the health of the US financial system, which is a key element in determining market risk sentiment.
US Dollar Index (DXY) Daily Chart
The DXY saw a slight recovery to 96.38 after hitting a low on July 1 but remains below the critical psychological resistance of 98.00. Currently, it’s testing a 20-day Simple Moving Average (SMA) at 97.70, while the 50-day SMA at 98.84 is the main resistance level.
Interestingly, the average of these movements shows a downward trend, reflecting a broader bearish outlook.
The relative strength index (RSI) is at 49, suggesting neutral momentum. Though it’s not quite selling territory yet, this indicator implies that the dollar may lack the strength needed for a significant bullish turnaround.
US Dollar FAQ
The US dollar (USD) serves as the official currency of the United States and is widely used in numerous other countries alongside local currencies. As of 2022, it was the most traded currency globally, representing over 88% of forex transactions—about $6.6 trillion each day. After World War II, it replaced the British pound as the global reserve currency. Historically, it was backed by gold, but the Bretton Woods Agreement in 1971 ended the gold standard.
The value of the US dollar is primarily influenced by monetary policy set by the Federal Reserve. The Fed aims for price stability (controlling inflation) and maximizing employment. Adjusting interest rates is the main tool for achieving these goals. If inflation rises sharply, exceeding the Fed’s 2% target, interest rates are likely to increase, thereby strengthening the dollar. Conversely, if inflation drops below that threshold or unemployment spikes, interest rates might be lowered, which tends to weigh on the dollar.
In extreme situations, the Federal Reserve might resort to printing more dollars and implementing quantitative easing (QE). QE is essentially a way to increase credit flow in the financial system when it’s stagnating, usually employed when banks are hesitant to lend to one another. If simply lowering interest rates isn’t effective, this becomes more of a last resort. The Fed used QE notably during the credit crunch of the 2008 financial crisis, primarily purchasing US government bonds from financial institutions. Typically, QE has a weakening effect on the US dollar.
Quantitative tightening (QT), on the other hand, is the opposite process where the Federal Reserve stops buying bonds from financial institutions and does not reinvest proceeds from maturing bonds into new ones. This usually has a positive effect on the US dollar.
