- The US Dollar is messing up markets after President-elect Trump announced more tariff measures.
- Markets are thrown left to right this Tuesday with European and Asian equities in red numbers.
- The US Dollar Index retreats to 106.00, despite the Canadian Dollar, Mexican Peso and Chinese Yuan as main losers against the Greenback.
The US Dollar (USD) is steamrolling markets and investors on Tuesday after President-elect Donald Trump communicated on his social media channel that his government will issue an additional 25% tariff on imports from Canada and Mexico, with an additional 10% to the 60% already announced during his election campaign on Chinese goods. Markets are not doing well with this communication, as equities are printing red numbers across the board and the globe while US bond prices are dropping (yields are soaring).
The US economic calendar will show some housing data on Tuesday. With the Housing Price Index for September and the New Home Sales data for October, markets will be able to see if the housing market in the US is cooling down as the last piece that was driving inflation. At the end of the day, the Federal Reserve (Fed) publishes the Minutes of its November 7 meeting.
Daily digest market movers: FOMC Minutes to be more important
- At 14:00 GMT, the monthly Housing Price Index for September is due. The number is expected to come in at 0.3%, the same as the August reading.
- At 15:00 GMT, the November Conference Board Consumer Confidence is due to come out, though no forecast is available with the previous reading at 108.70.
- At 15:00 GMT, New Home Sales data for October is expected to show a slide to 0.73 million units against 0.738 million previously.
- The Richmond Fed Manufacturing Index for November will be released at 15:00 GMT as well. The expectation is for a contraction of -10, less severe than the -14 previously.
- At 19:00 GMT, traders can look for clues about the December rate cut expectations in the release of the Fed’s Federal Open Market Committee (FOMC) Minutes for the November meeting.
- Equities are depressed across the board, with losses across Japan, China, Europe. Most losses remain contained to less than 1% on average. US equity futures are breaking the negative tone and are positive for this Tuesday.
- The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 59.6%. A 40.4% chance is for rates to remain unchanged.
- The US 10-year benchmark rate trades at 4.29%, substantially lower from the high printed two weeks ago of 4.50% on November 15.
US Dollar Index Technical Analysis: DXY not telling the truth
The US Dollar Index (DXY) is going the other way as one would expect, after comments from President-elect Donald Trump imposing even more tariffs on neighbours Canada, Mexico, and the usual suspect China. The weaker Canadian Dollar (CAD) component is being offset by a stronger Euro (EUR) and Swedish Krona (SEK).
The DXY does not really reflect what is actually taking place in the targeted countries. Hence, the muted reaction in the US Dollar Index does not seem to break out in a way on the back of this tariff announcement.
The fresh two-year high at 108.07 seen on Friday is the first level to beat. Further up, the 109.00 big figure level is the next one in line. The support from October 2023 at 109.36 is certainly a level to watch out for on the topside.
Support comes in around 106.52, the double top from May. A touch lower, the pivotal 105.53 (April 11 high) should avoid any downturns towards 104.00. Should the DXY fall all the way towards 104.00, the big figure and the 200-day Simple Moving Average at 103.98 should catch any falling knife formation.
US Dollar Index: Daily Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/us-dollar-chokeholds-markets-after-trump-hits-neighbouring-countries-with-surprise-tariffs-202411261207