US Dollar sinks as confidence plunges and inflation outlook clouds
- The US Dollar Index trades near the 100 area on Friday after briefly hitting a multi-year low in response to fresh trade tensions.
- Fed officials warned tariffs could stoke inflation and weaken growth, while sentiment data revealed deep consumer pessimism.
- Technical momentum remains bearish with no support in sight and resistance stacking around the 102.30 zone.
The US Dollar Index (DXY) continued to slide in Friday’s session, falling near the 100 area after setting a new three-year low earlier in the day. The downtrend reflects a broad deterioration in investor confidence as fresh data and central bank commentary paint a gloomy picture for the United States (US) economy. The University of Michigan’s sentiment index tumbled in April, while the Producer Price Index came in below forecasts, adding to the market’s disinflation concerns. Several Federal Reserve (Fed) officials flagged rising inflation expectations as a risk, even as short-term economic data hints at softening demand.
Technically, momentum remains strongly bearish as the DXY extends its retreat.
Daily digest market movers: US Dollar drops on consumer gloom and tariff fallout
- The University of Michigan’s sentiment gauge dropped to 50.8 in April, while inflation expectations surged to 6.7% for the one-year view.
- New York Fed’s Williams and Boston Fed’s Collins warned of rising trade-related inflation risks and a likely downturn in growth.
- US Producer Price Index rose 2.7% year-over-year in March, down from February’s 3.2%, while the core rate slowed to 3.3%.
- Unemployment claims edged up to 223K, with continuing claims falling to 1.85M, signaling mixed labor dynamics.
- China confirmed retaliatory tariffs on US imports, matching Washington’s hike to 125% and reviving recession concerns globally.
Technical analysis
The bearish tone remains dominant for the US Dollar Index, which is trading around the 100 area, near the session’s low. The Moving Average Convergence Divergence (MACD) continues to issue a sell signal, while the Relative Strength Index (RSI) sits at 29.37, reflecting weak but not oversold momentum. Momentum (10) reads -3.303, confirming continued downside risk. All major moving averages—including the 20-day Simple Moving Average at 103.52, the 100-day at 106.48, and the 200-day at 104.79—signal selling pressure. Resistance is expected at 102.29, 102.72, and 102.89, with no significant support identified below the current range. The technical backdrop suggests the DXY’s slump may not yet be over.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
