- The US dollar remains weak, driven by Trump’s rhetoric, Fed expectations, and rising Asian currencies.
- Trump’s trade comments sparked short-term optimism, but uncertainty over terms continues to undermine confidence.
- Strong employment data suggests steady Fed policy, but Powell’s guidance could influence market direction.
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The US Dollar began the week just below the 100 mark. While the dollar showed some resistance at the end of April, it remained weak throughout the month—reflecting a return to "uncertainty pricing" by investors.
Key factors behind the dollar’s weakness included US-China trade talks, shifting Fed expectations, and Trump’s aggressive rhetoric. A rally in Asian currencies has also added new pressure on the dollar.
Trump’s Policies and Rising Asian Currencies Weigh on Dollar
President Trump’s remarks about a potential deal with China sparked brief market optimism, but ongoing uncertainty around the deal’s terms continues to erode investor confidence. His recent announcement of a 100% tariff on foreign-produced movies further complicates the outlook, with such symbolic moves making it harder for investors to take his trade policies seriously.
Meanwhile, several Asian currencies—most notably the USD/TWD—have been gaining sharply against the US dollar. This trend is seen as reducing the dollar’s appeal as a global liquidity anchor. Over the past two trading days alone, the Taiwan dollar has risen more than 6%, while the MSCI Emerging Markets Currency Index has reached an all-time high. These developments suggest growing doubts about the US dollar’s role as the world’s reserve currency.
Strong Pre-FOMC Employment Data: What’s the Market Expecting?
Last Friday’s employment data confirmed the continued strength of the US labor market. Payrolls rose by 177,000, well above the forecast of 138,000. Aside from a modest slowdown in wage growth, the unemployment rate aligned with expectations. This solid data reinforced expectations that the Fed will hold interest rates steady at Wednesday’s meeting, while dampening hopes for a near-term rate cut. The market’s probability for a rate cut has dropped from 64% last month to 37% now.
Although a rate change is not expected, the Fed’s guidance will be key. How Chair Powell balances growth and inflation in his messaging may shape market expectations for the rest of the year. Currently, markets are pricing in 80–90 basis points of cuts by year-end, so investors will be watching closely to see if Powell still supports the 50 basis point cut he suggested in March.
US Dollar Technical Outlook
The DXY began April with a drop from 104, driven partly by Trump’s comments on raising trade tariffs. The index is now hovering around 99, just below the key psychological threshold of 100. In the short term, 99 serves as the first support level, while 97 is the next major support.
Several factors could continue to weigh on the dollar: Trump’s softer tone on China, the Fed’s current stance, and the ongoing strength of Asian currencies. However, the most critical driver this week will be Powell’s remarks. If he adopts a hawkish tone or hints at further tightening, the dollar could reverse course.
In that case, despite the year-to-date downtrend, a rebound toward 100.5, 102.5, or even 104 could be possible. For now, though, technical indicators suggest the DXY remains under pressure, with limited room for upward movement.
In summary, the main driver for the dollar this week remains Trump’s trade rhetoric. Alongside this, the Fed’s guidance and currency flows from Asia will be closely watched. Markets have mostly priced in the Fed’s decision to hold interest rates steady, but the lack of clear guidance leaves room for increased volatility in the dollar index.
If Powell delivers no surprises, the dollar is likely to continue consolidating within the 97–100 range. However, any hint of a policy shift could disrupt this balance and trigger a sharp move in either direction.
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