US Dollar rebounds from multi-year lows
- The US Dollar Index saw choppy action near the 99 zone in Monday’s session, rebounding from a fresh three-year low.
- Tariff uncertainty, sinking consumer confidence and elevated inflation expectations continue to weigh on sentiment.
- Technical signals remain bearish, with price capped below key resistance at the 101.80–102.20 zone.
The US Dollar Index (DXY) recovered slightly in Monday’s North American session after dropping to its lowest point since 2022. Trading around the 99.60 area, the index attempted to stabilize as investors reacted to signs of rising stagflation risks. The rebound came despite fresh US Dollar (USD) selling pressure that had driven EUR/USD and GBP/USD toward multi-month highs earlier in the day. While the market saw some relief after expanded exemptions on US reciprocal tariffs, concerns over inflation, consumer sentiment, and global trade frictions continued to dominate the landscape. Technically, downside pressure remains intact.
Daily digest market movers: US Dollar rebounds from three-year low
- On Friday, Consumer confidence fell sharply, with the University of Michigan’s index plunging to 50.8 in April, missing forecasts and marking the lowest since June 2022.
- Forward inflation expectations for the next 12 months rose to 6.7%, the highest in years, complicating the Federal Reserve’s policy outlook.
- China imposed new retaliatory tariffs of 125% on US imports after last week’s US escalation; business confidence is expected to suffer.
- The Pound and Euro initially surged, but both EUR/USD and GBP/USD gave back gains as the Greenback showed signs of stabilization into the session close.
- US Commerce officials confirmed new exemptions on electronic imports from reciprocal tariffs, temporarily calming recession fears but increasing policy uncertainty.
Technical analysis
The DXY remains technically fragile despite a mild bounce on Monday. The Moving Average Convergence Divergence (MACD) continues to generate a sell signal, while the Relative Strength Index (RSI) stands at 24.60—neutral but nearing oversold conditions. Price action stayed below all major moving averages, including the 20-day SMA at 103.13, the 100-day SMA at 106.34, and the 200-day SMA at 104.74. Shorter-term indicators like the 10-day Exponential Moving Average at 101.83 and the 10-day SMA at 102.23 also maintain a downward slope. Resistance is seen at 99.88, followed by the key 101.83 and 102.23 levels. The outlook stays bearish while the index fails to reclaim those zones.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
