- US CPI inflation cooled to 2.3% in April, below expectations, raising Fed rate cut speculation.
- Trump touts tax cuts and investment deals, but details on trade pacts remain vague.
- DXY slips below 101.60 as tariff truce with China lacks forward clarity.
- Markets expect first Fed rate cut by September 2025 with easing through 2026.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, lost ground on Tuesday, slipping to 101.50 as inflation data for April came in softer than expected. While CPI rose 0.2% monthly and 2.3% annually, missing forecasts, core inflation held steady at 2.8%.
Traders remain cautious amid vague trade commitments with China and the UK, and there are new uncertainties after President Trump pushed ambitious investment and tax plans without detailing how they would impact the economy. Despite tariff de-escalation headlines, the Fitch-rated effective tariff rate on Chinese goods remains above 40%, fueling doubt over the recent deal’s durability.
Daily digest market movers: CPI figures and trade policies in spotlight
- CPI inflation in the US slowed to 2.3% annually in April, missing the expected 2.4%, and core CPI held at 2.8% YoY.
- Trump claims China has lowered tariffs, but Fitch says effective rates remain above 40% after legacy policies.
- Markets question substance of recent China and UK trade deals as details remain scant.
- President Trump promotes a $4 trillion tax cut bill focused on high-income earners, while lower-income taxes may rise.
- Trump says new “investment agreements” with firms like Amazon and Oracle will fuel growth but provides no framework.
- Fed’s Goolsbee warns tariffs can still fuel inflation, but recent data don’t confirm those fears.
- US and China have agreed to a 90-day tariff truce with US duties reduced to 30% and China’s to 10%.
- Fed policymakers maintain cautious tone as CPI remains within acceptable ranges, delaying potential monetary easing.
- Rate markets show a 91.6% probability of no change at the June 18 Fed meeting and 65.1% in July.
- September has a 51.6% probability of a 25 bps cut, with long-term projections pointing to 3.25%-3.50% by end of 2026.
- Risk assets remain mixed; Gold is flat after recent pullbacks, while Oil and equities are cautiously bid.
- Trump hints at Iran talks and outlines intent to enforce oil export embargo if diplomacy fails.
- Fed Chair Powell’s comments are awaited later in the week for guidance on policy direction.
- EUR/USD remains under pressure near 1.1060 with resistance at 1.1322 and support at the 1.1000 mark.
US Dollar Index technical analysis: Rate gap issues persist
The US Dollar Index exhibits a bearish signal, currently trading near 101.00 after a minor daily decline. Price action sits near the lower end of the intraday range between 101.19 and 101.76.The Relative Strength Index (RSI) and the Ultimate Oscillator both hover in the 50s, suggesting neutral momentum.
The Moving Average Convergence Divergence (MACD) shows a modest buy signal, but this is countered by the Stochastic Relative Strength Index (Stochastic RSI) Fast, which is extended in the 90s — indicating overbought conditions. Additionally, the 10-period Momentum indicator near 2.00 reinforces short-term selling pressure.
On the moving average front, the 20-day Simple Moving Average (SMA) continues to point upward, hinting at near-term bullishness. However, the 50-day Exponential Moving Average (EMA), 50-day SMA, 100-day SMA, and 200-day SMA — all clustered near the 100 level — indicate a broader bearish trend. Key support levels are identified at 100.94, 100.73 and 100.63, while resistance levels are noted at 101.42, 101.94 and 101.98.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
