US Dollar extends rally after Trump promises more tariffs
- The US Dollar gets propped up and flirts with a fresh two-month high.
- Traders are adding to more bets on a Trump win for a second day in a row.
- The US Dollar Index breaks above a key level on its way to 104.00.
The US Dollar (USD) extends gains on Wednesday after breaking above a very heavy resistance level in the US Dollar Index (DXY). The Greenback received an extra push after former President Donald Trump appeared on Bloomberg television outlining his plans if he wins the November 5 presidential election. Trump delivered some harsh statements on trade, taxes and the Federal Reserve (Fed) which were enough to push the Greenback higher against most major currency peers as traders increasingly seem to price in a victory for the Republican nominee.
The US economic calendar is light on Wednesday, with no real market-moving data ahead and no Fed officials set to speak. Expect traders to sit on their hands in the run-up to the European Central Bank (ECB) meeting on Thursday.
Daily digest market movers: Trump banks on momentum
- During the US session on Tuesday, former President Donald Trump appeared in an interview on Bloomberg. He used the forum to further outline his plans on trade, the US economy and the Fed. His words pushed the US Dollar higher to fresh two-month highs against the Euro (EUR) and against the Chinese Yuan (CNY).
- Looking at the calendar, the weekly Mortgage Applications from the Mortgage Bankers Association (MBA) were due at 11:00 GMT. Applications fell by a staggering 17% after last week applications already fell by 5.1%.
- At 12:30 GMT, the Import/Export Price Index for September is due:
- Monthly Export Prices are set to decline less rapidly, by 0.4%, against the 0.7% decline from August while the Monthly Import Price Index is set to decline further to 0.4, coming from a negative 0.3% in August.
- Equities trade mixed, with Chinese stocks having closed substantially lower, while Japan was up on the day. European equities look sluggish while US futures are rather flat.
- The CME Fed rate expectation for the meeting on November 7 shows a 94.2% probability of a 25 basis point rate cut, while the remaining 5.8% is pricing in no rate cut. Chances for a 50 bps rate cut have been fully priced out.
- The US 10-year benchmark rate is trading at 4.00%, a touch softer than the high from last week at 4.11% seen on Thursday.
US Dollar Index Technical Analysis: Trump effect swells
The US Dollar Index (DXY) is seeing ample amount of support and inflow for a second day in a row after former US President Donald Trump’s interview..
Markets are starting to take positions on the assumption that Trump will win the election, which traders seem to be associating to a stronger US Dollar based on his laid-out plans. With the DXY making its way through that difficult 100-day Simple Moving Average (SMA) at 103.21, the next level up is 103.78 and 104.00.
A double belt of resistance is ahead at 103.78, which aligns with the 200-day SMA. After that, there is a small gap before hitting the pivotal level at 103.99 and the 104.00 big figure. Should Trump start to further lead in the polls, a rapid swing up to 105.00 with 105.53 as first port of call could be on the cards.
On the downside, the 100-day SMA at 103.21 together with the pivotal level at 103.18 is now acting as support and should avoid the DXY from falling lower. With the Relative Strength Index near overbought territory, a test on this level looks granted. Further down, the 55-day SMA at 101.85 and the pivotal level at 101.90 should avoid any further downside moves.
US Dollar Index: Daily Chart
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.
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