US Dollar Index (DXY) consolidates near 100.50 area, just below multi-week high
- The USD climbs to a nearly one-month high on Friday amid a combination of supporting factors.
- The Fed's hawkish pause earlier this week and easing US recession fears underpin the Greenback.
- The USD bulls now look forward to speeches from influential FOMC members for a fresh impetus.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, enters a bullish consolidation phase after touching a nearly one-month top, around the 100.85 region during the Asian session on Friday. Nevertheless, the index remains on track to register gains for the third straight week and seems poised to build on its recent recovery from a multi-year trough touched in April.
The Federal Reserve (Fed) Chair Jerome Powell said earlier this week that there is great uncertainty over US trade tariffs and that the right thing to do now is to wait for further clarity. The remarks suggested that the US central bank is not leaning towards cutting interest rates anytime soon. Adding to this, the US-UK trade agreement raises hopes for more such deals with other countries and helps ease concerns that an all-out trade war might trigger a US recession. This, in turn, should continue to act as a tailwind for the US Dollar (USD).
Apart from this, persistent geopolitical risks stemming from the protracted Russia-Ukraine war, the escalation of tensions in the Middle East, and the India-Pakistan border validate the near-term positive outlook for the safe-haven buck. The USD bulls, however, refrain from placing fresh bets and opt to move to the sidelines ahead of speeches from a slew of influential FOMC members later during the North American session. The comments will be scrutinized for cues about the future rate-cut path and provide some impetus to the DXY.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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