Top Story

Dollar in limbo amid focus on trade war concerns and interest rates

The US dollar index on Wednesday clawed back a small portion of its recent losses after data from the ADP employment report showed a better-than-expected 235,000 private sector jobs added to the US economy in February. Though this data does not necessarily foretell a positive outcome for the US Government’s official non-farm payrolls data scheduled to be released on Friday, it does provide some confidence that the US employment landscape remains strong. This helps keeps expectations high that the Federal Reserve is on still on track to raise interest rates at a relatively brisk pace, which provides a measure of support for the dollar.

More urgent for the markets than jobs data, however, especially for US equities and the dollar, are the recently developed concerns of a potential global trade war in the making after US President Trump announced last week that US import tariffs would be instituted as early as this week. That pivotal announcement unleashed a series of events that included forceful pushbacks and threats of retaliation from major US trading partners, most notably Canada, the UK, and the European Union.

Global stock markets and the dollar were hit hard as the specter of an eventual trade war that could choke economic growth loomed. This culminated on Tuesday afternoon in the resignation of President Trump’s chief economic advisor, Gary Cohn, a fiercely pro-trade advocate. Cohn’s resignation did much to strengthen the standing of the White House’s current protectionist contingent, most notably led by National Trade Council Director Peter Navarro, and sent a signal to the markets that a global trade war is even more likely now that Cohn, one of the only major moderating voices in the Trump Administration, is now gone. Trump must now choose a new chief economic advisor. His ultimate choice will likely have a far-ranging impact on the US economy, stocks, and the dollar.

Amid the forces pushing and pulling the US dollar in different directions over the past several weeks – including speculation over the Federal Reserve’s monetary policy path and the noted concerns over a global trade war – the US dollar index has remained in a range between its recent multi-year low at 88.25 and a high near 91.00 resistance. Most recently, the index has fallen sharply from the 91.00 resistance area after Trump made his tariff announcement late last week. It has also fallen from its 50-day moving average, suggesting a possible continuation of the prevailing downtrend and bearish bias. With any concrete announcement of US tariff implementation, further global trade retaliation, and/or appointment by Trump of a protectionist economic advisor, the dollar could have significantly further to fall. The next clear downside target in this event is around the 88.50-area support lows. Any further breakdown below that level would confirm a potential continuation of the longstanding downtrend for the dollar.


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account