- The US Dollar Index holds above 107.00 amid trade policy concerns.
- Trump extends 25% tariffs to pharmaceuticals and semiconductors starting in April.
- Fed officials discuss slowing balance sheet runoff amid renewed debt ceiling concerns.
- DXY recovers but remains uncertain with key technical levels in focus.
The US Dollar Index (DXY), which tracks the US Dollar’s performance against six major currencies, trades slightly higher on Wednesday. Investors weigh the Federal Reserve’s (Fed) policy stance and the latest trade measures announced by US President Donald Trump, who confirmed that pharmaceutical and semiconductor imports will face 25% tariffs starting in April. At the time of writing, the DXY remains above 107.00 but struggles to establish a clear direction.
Daily digest market movers: US Dollar firms as Fed weighs balance sheet strategy
- US President Donald Trump confirms 25% tariffs on pharmaceutical and semiconductor imports are set to begin in April.
- Auto tariffs also reaffirmed at 25%, adding pressure to global trade tensions.
- Trump shifts focus to trade policy after a lack of progress in Russia-Ukraine peace talks.
- Fed Meeting Minutes highlight concerns over balance sheet reduction and debt ceiling impact.
- Fed officials indicate that slowing or pausing balance sheet runoff may be appropriate.
- Some participants believe trade and immigration policies could complicate the disinflation process.
- Most Fed officials view risks to inflation and employment as roughly balanced.
- A few Fed officials argue that inflation risks outweigh employment risks in policy decisions.
DXY technical outlook: Bulls need to reclaim key resistance levels
The US Dollar Index maintains modest gains above 107.00, but upside momentum remains limited. Despite the rebound, the 20-day Simple Moving Average (SMA) remains a key resistance level after being lost last week.
The Relative Strength Index (RSI) continues to hover in bearish territory, while the Moving Average Convergence Divergence (MACD) reflects steady downside pressure. A drop below the 100-day SMA at 106.30 would reinforce a negative short-term outlook. Bulls need stronger momentum to challenge the 107.50 resistance level and establish a more sustained recovery.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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