Fed holds rates, lowers growth forecast, and raises inflation expectations.
Markets await April 2 tariffs, which could drive currency fluctuation.
Looking for more actionable trade ideas to navigate the current market volatility? Subscribe here to unlock access to ProPicks AI winners.
The is experiencing volatility due to several factors, including global economic conditions, US President Donald Trump’s trade policies, and the latest . Concerns about economic growth and inflation are influencing market sentiment. Last but not least, uncertainty surrounding Trump’s new tariffs, set to take effect on April 2, is also driving the fluctuations in the US dollar.
(DXY), which dropped to 103.2 last week, is still testing levels last seen in October 2024. However, buying from recent lows helped the index recover some losses, pushing it up to 104.22 during the week. DXY started the new week moving sideways around 104.
In March, the dollar’s downward trend slowed, gaining 0.4% in the first half of the month. However, market risk perception and uncertainties about interest rate policies played a big role in these movements.
In the short term, the dollar may see more ups and downs after Trump’s new tariffs take effect. The US’s role in global trade and the chance of other countries responding with their own tariffs continue to create pressure on the dollar.
Markets Brace for Global Impact of Trump’s Tariffs
US President Donald Trump’s “reciprocal tariffs,” set to take effect on April 2, will directly influence the dollar’s movement. The first phase of these tariffs is expected to be more “targeted,” with the possibility of exemptions for some countries on and other metals.
However, if Trump’s trade policies become more aggressive and disrupt the global supply chain, market risk appetite could decline, leading to a stronger dollar as investors seek safe-haven assets.
Market expectations on the issue remain uncertain. If Trump’s tariffs are not large-scale, the positive mood in the markets may continue. However, if the scope of the tariffs expands and retaliations are on the agenda, there may be a rapid rise in the dollar index.
Fed’s Interest Rate Decision and Economic Outlook
The Fed’s decision to keep interest rates between 4.25%-4.50% at its last meeting in March had a strong impact on the markets. Fed Chairman Jerome said the effects of tariffs on inflation would be “temporary” and reaffirmed their expectation of two quarter-point rate cuts in the second half of the year.
New York Fed President John stated that “downside risks to economic growth” and “upside risks to ” remain strong, stressing that the Fed will not rush to cut rates. He believes the Fed is unlikely to make a clear move on rate cuts until the full effects of the Trump administration’s trade policies are evident.
The Fed revised its projection down from 2.1% to 1.7% while raising its inflation expectation from 2.5% to 2.8%. This increases the likelihood of rising inflationary pressures and suggests the Fed may delay its decision to cut interest rates.
Global Economy and Policies: What to Expect?
In the global economic outlook, decisions by major central banks like the and the play a role in shaping the dollar’s movement. The ECB kept interest rates unchanged and stated that no further monetary tightening is needed to control inflation. Meanwhile, the BoJ did not signal any plans to end its negative interest rate policy.
This situation could support a stronger dollar. With US interest rates staying high while other central banks maintain loose policies, the dollar may become a more attractive option for investors.
Technical Outlook on DXY
Technically, the dollar index has intermediate support at 103.2. After bouncing from this level last week, DXY moved toward 104, which is the main support to watch. So far, the index has not broken its critical 104 support (Fib 0.618). In fact, the weekly close was recorded at 104.09.
In upward movements, the 3-month exponential moving average (EMA) may act as intermediate resistance at 104.6. If DXY stays above this level, it could signal a positive trend. In that case, the index may move toward the 105.2–106.4 range. If the impact of Trump’s tariffs remains limited, the dollar could have room to rise to these levels.
If a downward break occurs, the index may decline toward the 102.3 range, which aligns with Fib 0.786.
Market volatility is likely to stay high in the short term. With ongoing pressure on the dollar index, investors will closely watch Trump’s tariffs and the Fed’s policy statements. The dollar’s short-term direction will depend on the scope of the tariffs announced on April 2 and how markets react to these decisions.
Be sure to check out InvestingPro to stay in sync with the market trend and what it means for your trading. Whether you’re a novice investor or a seasoned trader, leveraging InvestingPro can unlock a world of investment opportunities while minimizing risks amid the challenging market backdrop.
Subscribe now and instantly unlock access to several market-beating features, including:
ProPicks AI: AI-selected stock winners with proven track record.
InvestingPro Fair Value: Instantly find out if a stock is underpriced or overvalued.
Advanced Stock Screener: Search for the best stocks based on hundreds of selected filters, and criteria.
Top Ideas: See what stocks billionaire investors such as Warren Buffett, Michael Burry, and George Soros are buying.
***
Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belongs to the investor. We also do not provide any investment advisory services.
