US Dollar gains traction as markets digest economic shifts and geopolitical risks

FXStreetMar 18, 2025 6:39 PM

The US Dollar Index edges higher, recovering from earlier losses.
Germany plans to inject 0.5 trillion euros into fiscal spending.
Geopolitical uncertainty rises as Trump and Putin hold key discussions.
Economic indicators show resilience despite market volatility.

The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of six currencies, is stabilizing after avoiding a fresh five-month low. Traders react to Germany’s significant fiscal expansion while monitoring geopolitical risks linked to ongoing talks between US President Donald Trump and Russian President Vladimir Putin. The index rebounded from earlier declines as sentiment shifted.

Daily digest market movers: US Dollar steadies amid economic releases

Trump and Putin’s high-level talks continue with reports indicating discussions on territorial matters, raising concerns over European security and NATO's response.
Germany’s fiscal expansion is driving market sentiment with increased government spending expected to impact European economic stability.
On the US data front, Building Permits for February slightly exceeded expectations but declined compared to January’s levels.
Housing Starts surged, reflecting ongoing strength in the housing market despite broader economic uncertainties.
Export and import prices rose more than anticipated, adding to inflation concerns.
Industrial Production expanded at a robust pace, signaling resilience in US manufacturing.
European stocks are rallying on optimism surrounding Germany’s spending boost, while US equities are under pressure.
The Federal Reserve is expected to hold rates steady on Wednesday with market pricing indicating little change in the central bank’s tone and stance on the upcoming decision.

Technical analysis: US Dollar Index regains footing but remains under key resistance levels

The US Dollar Index is attempting to regain strength, though it remains near multi-month lows. The Relative Strength Index (RSI) is exiting oversold territory, suggesting a potential recovery, while the Moving Average Convergence Divergence (MACD) histogram continues to indicate bearish momentum, though the downside pressure is easing.

Resistance is seen at 104.20, followed by 104.80 and 105.20, marking key breakout levels. Support holds at 103.40, with a breach lower exposing 102.90. While short-term momentum is recovering, the index remains below its 50-day and 200-day simple moving averages, signaling that a sustained bullish trend is yet to form.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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.

Disclaimer: The information provided on this website is for educational and informational purposes only and should not be considered financial or investment advice.