US Dollar Seeks Direction as Trump Prepares for Davos Remarks

  • US traders are keeping an eye on the Federal Reserve’s looming rate decision despite headlines about cuts.
  • President Trump renews criticism of trade imbalances, sparking market rumors of new tax cuts and oil price demands.
  • Solid US growth between 2.5% and 3.0% helps support the dollar, although political ambiguities weigh on sentiment.
  • Jobless claims rise slightly, suggesting labor market conditions remain resilient.

The US dollar has remained flat during the US trading session on Thursday. US President Trump spoke at the World Economic Forum in Davos. The US Dollar Index (DXY) is back above 108.00, although it faces slight selling pressure again.

Daily Market Summary: USD Sees Red Even as Trump Hints at Tariffs on Canada, Mexico

  • During his appearance at the World Economic Forum, President Trump reiterated that the US trade deficit with Canada is unsustainable and underscored his intention to seek deeper tariff measures if deemed necessary.
  • He also proclaimed his commitment to reducing corporate taxes, pressuring OPEC to reduce oil prices, and trying to influence the independence of the Federal Reserve.
  • New jobless claims rose to 223,000 for the week ending January 18, slightly above previous forecasts. The insured unemployment rate stands at 1.2% with continuing claims rising to nearly 1.9 million.
  • Growth in the US economy remains robust at around 2.5%-3.0% annualized, driven by increases in hiring that support consumption and keep inflation somewhat elevated. Analysts widely expect the Fed to keep rates steady next week, without seeing a compelling argument to cut anytime soon.
  • Manufacturing data from the Kansas City Fed is scheduled to be released, followed by the services index on Friday. Markets remain alert to potential headwinds, but leading indicators suggest the US economy maintains its underlying strength.

DXY Dollar Index Technical Outlook: Indicators struggle as index fails to hold near 108.50

The US Dollar Index continues to fight selling pressure but has yet to sustain gains beyond 108.50. Momentum signals, such as the Relative Strength Index (RSI), remain below the 50 threshold, indicating a weaker bias. The red MACD bars are expanding, suggesting growing bearish momentum.

The DXY stabilized around 108.20, although lack of follow-through could lead to further declines. Without new catalysts to renew buying interest, the dollar’s rebound could be short-lived, leaving it vulnerable to continued profit-taking.

US Dollar FAQs


The United States 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 alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions. After World War II, the USD took over from the pound sterling as the world’s reserve currency.


The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, 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 enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of 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 of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.


Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.

Source: Fx Street

You may also like