The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, loses momentum on Tuesday after struggling to revisit the 110.00 level and declined below 108.00. Recent developments include President Trump's imposition of a 10% tariff on Chinese imports, while tariffs on Canadian and Mexican goods have been paused for 30 days following negotiations. Investors are concerned that these tariffs could contribute to inflationary pressure within the US economy.
Meanwhile, traders brace for Friday’s US Nonfarm Payrolls (NFP) data, which is expected to shape the Federal Reserve’s (Fed) monetary policy direction.
The US Dollar Index is losing traction with technical indicators reflecting growing downside pressure. The Relative Strength Index (RSI) has dropped below 50, signaling a shift toward bearish momentum. Additionally, the index has slipped below its 20-day Simple Moving Average (SMA) at 108.50, increasing the likelihood of further declines.
If selling pressure persists, the next key support zone lies near 107.80, while resistance remains at 109.00. A sustained move below 108.00 could reinforce bearish sentiment, potentially leading to a deeper correction.
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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