US Dollar Index (DXY) trims some losses after bouncing from the 98.00 area
- The US Dollar Index finds support at the 98.00 area, but upside attempts remain limited.
- The escalating trade tensions between the US and China are gripping markets and weighing on the US Dollar.
- Dovish comments by Fed policymakers have endorsed hopes of two more rate cuts before year-end.
The US Dollar Index has found some support at the 98.00 area and is trimming some losses during Friday’s European trading session. The Index, however, remains vulnerable, after having depreciated nearly 1.30% in a four-day sell-off.
The USD Index, which measures the value of the USD against a basket of six majors, remains unable to put a significant distance from weekly lows, as concerns about the mounting tensions between the US and China and hopes of upcoming Fed rate cuts are acting as headwinds for any potential recovery
Trade wars, Fed easing hopes weigh on the USD
The trade rift with China escalated on Thursday after US President Donald Trump affirmed that they are already in a trade war with the Asian Country. Later on the day, Treasury Secretary Scott Bessent called China’s trade negotiator “unhinged” wolf, which did not help to de-escalate tensions.
Furthermore, the Fed keeps sending signals of further monetary easing ahead. On Thursday, Fed Governor Christopher Waller affirmed that the bank should cut rates again in October, the impact of tariffs on inflation remains moderate, while Stephen Miran, Trump’s latest appointment to the board, reiterated the need for more aggressive rate cuts.
The Fed is the primary source of data amid the US government shutdown, and later today, it will release September’s Industrial Production report, which is expected to have grown at a steady 0.1% pace. Later on, St. Louis Fed President Alberto Mussalen might provide further clues on the bank’s monetary policy plans.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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