Dollar Rebounds as Tariffs Take the Spotlight
The US dollar is bouncing back after a couple of weeks of losses, showing it's still a strong currency. This comeback is thanks to good economic news in the US, different central bank policies around the world, and the recent US tariffs. Let's take a closer look at what's making the dollar stronger and what might happen to other currencies this week.
The Dollar's Comeback: Why is it Happening?
The dollar's recent rebound isn't just a random event; it shows how strong it really is. A few things are making it more powerful. First, the US economy is doing better than many other countries. We've seen good GDP growth, a strong job market, and inflation that's sticking around. This makes the US dollar a good option for investors who want stability. Second, the Federal Reserve (Fed) in the US is keeping interest rates high, while other big central banks like the European Central Bank (ECB) and the Bank of Canada (BoC) are actually cutting rates. This makes the US dollar even more attractive because investors can get better returns here. Finally, the US has put tariffs on steel and aluminum imports. This might not hurt the US economy much directly, but it could cause more trade problems and make things uncertain, which could actually make the dollar even stronger as people look for a safe place to put their money.
Looking at the US Dollar Index (DXY), which measures the dollar against other major currencies, we can see this rebound in action. The DXY had a strong week last week, forming a bullish candlestick pattern. This suggests that the dollar's upward momentum could continue. The next key level to watch is around 110. If the DXY can break above this level, it could signal further gains for the dollar.
US Labor Market & FED
The US job market is a big reason why the dollar is doing well. Unemployment is really low, new jobs are being created, and wages are going up. This strong job market keeps inflation around, which is why the Fed keeps interest rates high, and that helps the dollar. This week, we'll get some important reports about jobs, like the JOLTs report, ADP private payrolls, and the big Nonfarm Payrolls report. If these reports show the job market is still strong, the dollar will likely keep getting stronger and the Fed will probably keep interest rates high.
The Federal Open Market Committee (FOMC), which decides on interest rates in the US, is meeting soon. What people will really be watching is what they say about the future. With the economy doing well and those new tariffs may be causing inflation, the Fed will probably keep talking about leaving rates where they are in the near future. This would make the dollar even stronger given the difference in policy approach compared to other central banks.
Trade Wars: Trouble for Other Currencies
Those new tariffs have people worried about trade wars and what they might do to the global economy. The Canadian dollar and the New Zealand dollar are especially vulnerable because they rely a lot on trade with the US and China. The Canadian dollar has already dropped because of the tariffs, and it might fall further if trade gets worse. The New Zealand dollar is also in a tough spot because the Chinese economy is slowing down, which could hurt New Zealand's exports. On top of that, the Bank of Canada and the Reserve Bank of New Zealand might cut interest rates, which would make their currencies even weaker.
USD/CAD has surged higher, breaking above its recent trading range and gapping up significantly over the weekend due to the new US tariffs. The Canadian dollar is in a precarious position, facing substantial weakness against the US dollar. While many traders anticipate further upside, the level for a short-term reversal is not clear. Key levels to watch include 1.4600 and the lower gap boundary around 1.4500, which could act as potential turning points. Given the Canadian dollar's vulnerability, a reversal could occur at any moment.
What About the UK and Europe?
The Bank of England (BoE) in the UK is also likely to cut interest rates because their economy is slowing down and there's a lot of uncertainty. Most people expect this rate cut, but it's still important to listen to what the BoE says because any surprises could trigger a lot of volatility in the pound. The Eurozone is also facing challenges, with mixed economic data lately. The European Central Bank (ECB) is expected to keep things loose in terms of its policies, but any bad news could make the EURUSD pair fall to parity.
The British pound has been in a downtrend for a while now. GBP/USD is currently attempting to fill the weekend gap, with a potential move up to 1.2380 before resuming its downward trajectory. Unless the Bank of England surprises with unexpectedly hawkish commentary, a longer-term decline towards 1.2100 seems likely.
*This is a market analysis, not trading advice. Trade responsibly and do your own research.
The Dollar's Comeback: Why is it Happening?
The dollar's recent rebound isn't just a random event; it shows how strong it really is. A few things are making it more powerful. First, the US economy is doing better than many other countries. We've seen good GDP growth, a strong job market, and inflation that's sticking around. This makes the US dollar a good option for investors who want stability. Second, the Federal Reserve (Fed) in the US is keeping interest rates high, while other big central banks like the European Central Bank (ECB) and the Bank of Canada (BoC) are actually cutting rates. This makes the US dollar even more attractive because investors can get better returns here. Finally, the US has put tariffs on steel and aluminum imports. This might not hurt the US economy much directly, but it could cause more trade problems and make things uncertain, which could actually make the dollar even stronger as people look for a safe place to put their money.
Looking at the US Dollar Index (DXY), which measures the dollar against other major currencies, we can see this rebound in action. The DXY had a strong week last week, forming a bullish candlestick pattern. This suggests that the dollar's upward momentum could continue. The next key level to watch is around 110. If the DXY can break above this level, it could signal further gains for the dollar.
US Labor Market & FED
The US job market is a big reason why the dollar is doing well. Unemployment is really low, new jobs are being created, and wages are going up. This strong job market keeps inflation around, which is why the Fed keeps interest rates high, and that helps the dollar. This week, we'll get some important reports about jobs, like the JOLTs report, ADP private payrolls, and the big Nonfarm Payrolls report. If these reports show the job market is still strong, the dollar will likely keep getting stronger and the Fed will probably keep interest rates high.
The Federal Open Market Committee (FOMC), which decides on interest rates in the US, is meeting soon. What people will really be watching is what they say about the future. With the economy doing well and those new tariffs may be causing inflation, the Fed will probably keep talking about leaving rates where they are in the near future. This would make the dollar even stronger given the difference in policy approach compared to other central banks.
Trade Wars: Trouble for Other Currencies
Those new tariffs have people worried about trade wars and what they might do to the global economy. The Canadian dollar and the New Zealand dollar are especially vulnerable because they rely a lot on trade with the US and China. The Canadian dollar has already dropped because of the tariffs, and it might fall further if trade gets worse. The New Zealand dollar is also in a tough spot because the Chinese economy is slowing down, which could hurt New Zealand's exports. On top of that, the Bank of Canada and the Reserve Bank of New Zealand might cut interest rates, which would make their currencies even weaker.
USD/CAD has surged higher, breaking above its recent trading range and gapping up significantly over the weekend due to the new US tariffs. The Canadian dollar is in a precarious position, facing substantial weakness against the US dollar. While many traders anticipate further upside, the level for a short-term reversal is not clear. Key levels to watch include 1.4600 and the lower gap boundary around 1.4500, which could act as potential turning points. Given the Canadian dollar's vulnerability, a reversal could occur at any moment.
What About the UK and Europe?
The Bank of England (BoE) in the UK is also likely to cut interest rates because their economy is slowing down and there's a lot of uncertainty. Most people expect this rate cut, but it's still important to listen to what the BoE says because any surprises could trigger a lot of volatility in the pound. The Eurozone is also facing challenges, with mixed economic data lately. The European Central Bank (ECB) is expected to keep things loose in terms of its policies, but any bad news could make the EURUSD pair fall to parity.
The British pound has been in a downtrend for a while now. GBP/USD is currently attempting to fill the weekend gap, with a potential move up to 1.2380 before resuming its downward trajectory. Unless the Bank of England surprises with unexpectedly hawkish commentary, a longer-term decline towards 1.2100 seems likely.
*This is a market analysis, not trading advice. Trade responsibly and do your own research.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.