- The dollar index gains traction, reaching a new weekly maximum above 108.00 as the feeling of the market deteriorates.
- The requests for durable goods in the US disappointed, falling 2.2% in December, not complying with the expectations of an increase of 0.8%.
- The secretary of the Treasury, Scott Besent, proposed gradual tariffs, but Trump pressed for higher and more uniform rates, scaring investors.
- Consumer confidence in January fell to 104.1 from 109.5 in December, reflecting growing concerns about economic perspectives.
The US dollar index (DXY), which measures the value of the US dollar compared to a foreign exchange basket, extended its profits on Tuesday, consolidating above the psychological level of 108.00. The feeling of the market was attributed after the renewed concerns about tariffs and the weak economic data of the US, including orders of durable goods lower than expected and the decrease in consumer’s confidence. Despite these obstacles, the DXY managed to stay above its recent minimums, pointing out some resilience.
Daily market summary: the US dollar wins despite the weak economic data
- The secretary of the Treasury, Scott Besent, proposed incremental tariffs on all imports of the US, starting in 2.5%, triggering risk aversion in markets.
- President Trump countered Besent’s suggestion, demanding significantly higher tariffs, further destabilizing global financial markets.
- The Conference Board Conference Conference Index fell to 104.1 in January from 109.5 in December, indicating a weaker feeling.
- The requests for durable goods decreased by 2.2% in December, led by a 7.4% drop in transport equipment, marking another economic setback.
- Excluding transport, the new orders increased modestly 0.3%, offering limited optimism in the midst of general falls.
- Concerns about overvalued shares contributed to a feeling of cautious market, limiting the appetite for risk and favoring the US dollar.
- Investors now direct their attention to the decision of the Federal Reserve on Wednesday, where a pause has already been discounted.
DXY technical perspective: Resilience above 108.00, correction risks persist
The dollar index showed resilience when recovering levels above 108.00, driven by a renewed demand for safe refuge. Technical indicators, however, paint a mixed panorama. While the RSI remains below 50, hinting at a weak impulse, the MACD shows increasing flat bars, pointing out a sustained bearish pressure.
On the positive side, upward correction could be extended if the downward movement becomes excessive. The immediate resistance is found in 108.50, while a failure in maintaining 108.00 could see the DXY index by reviewing the support about 107.50.
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 in circulation along with local tickets. According to data from 2022, it is the most negotiated currency in the world, with more than 88% of all global currency change operations, which is equivalent to an average of 6.6 billion dollars in daily transactions. After World War II, the USD took over the pound sterling as a world reserve currency.
The most important individual factor that influences the value of the US dollar is monetary policy, which is determined by the Federal Reserve (FED). The Fed has two mandates: to achieve price stability (control inflation) and promote full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% objective set by the Fed, it rises the types, which favors the price of the dollar. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the dollar.
In extreme situations, the Federal Reserve can also print more dollars and promulgate quantitative flexibility (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is an unconventional policy measure that is used when the credit has been exhausted because banks do not lend each other (for fear of the default of the counterparts). It is the last resort when it is unlikely that a simple decrease in interest rates will achieve the necessary result. It was the weapon chosen by the Fed to combat the contraction of the credit that occurred during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy bonds of the US government, mainly of financial institutions. Which usually leads to a weakening of the US dollar.
The quantitative hardening (QT) is the reverse process for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the wallet values that overcome in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
