US Dollar Index (DXY) slips to a fresh weekly low amid growing trade and geopolitical tensions.
The US Dollar Index (DXY), which tracks the performance of the US Dollar against a basket of six major currencies, continued its downward drift on Tuesday, slipping to a new weekly low below the 100.00 psychological barrier. Investor sentiment soured as multiple economic and geopolitical developments converged, amplifying market uncertainty and shaking confidence in the US economic outlook.
The most immediate driver of the dollar’s weakness was the latest US Trade Balance data. According to the US Census Bureau, the Goods and Services Trade Balance widened sharply in March to a deficit of $140.5 billion, compared to the expected $129 billion and February’s $122.7 billion. The magnitude of the shortfall has stirred fresh concerns over the underlying health of the US economy, especially at a time when growth is already moderating and global demand appears to be softening.
Market Jitters Deepen Amid Delayed Trade Talks and Diplomatic Setbacks.
Investor anxiety intensified after US Commerce Secretary Howard Lutnick indicated that the first phase of a US trade agreement under the Trump administration must be made with a “top ten economy.” This comment, delivered during a Fox News interview, led traders to believe that negotiations could be prolonged, with the timeline for a trade breakthrough appearing increasingly uncertain. The markets previously priced in a deal with a smaller, easier partner such as Vietnam or Chile. Now, the demand for a larger counterpart complicates the roadmap and injects fresh doubt into an already jittery environment.
Compounding concerns, Taiwan’s Dollar surged by more than 5% against the US Dollar on Monday, a highly unusual move that prompted speculation about capital flows and intervention. Though the TWD slightly retreated on Tuesday, analysts worry the strength could spill over into other Asian currencies, such as the South Korean Won (KRW), Japanese Yen (JPY), and Chinese Renminbi (CNH). A broader Asian currency rally could further pressure the greenback, particularly if intervention by Asian central banks is limited.
German Political Crisis Roils Markets
Meanwhile, Europe added its own layer of chaos. In Germany, the Bundestag set to confirm Friedrich Merz as the next Chancellor, but the vote ended in dramatic failure. Merz was unable to secure a majority, despite leading the CDU-CSU coalition that initially appeared united behind him. The failed vote reflects deep fractures in Germany’s political structure, opening the door to further parliamentary deadlock, potential snap elections, or a surprise new candidate.
European equities responded poorly, with the DAX falling 0.5%, reflecting broader European unease. The political impasse in Europe’s largest economy casts a shadow over EU fiscal and monetary policy decisions, especially at a time when the European Central Bank (ECB) is already grappling with slowing growth and fragmented inflation across member states.
Geopolitical Flashpoints: Russia, Ukraine, and the Middle East
Beyond economics and politics, geopolitical risks are escalating on multiple fronts. The war between Russia and Ukraine has intensified, with drone strikes reported on both sides. Simultaneously, Israel is ramping up military operations in Gaza, with fresh troop deployments and plans for a ground offensive aimed at full territorial control.
These developments have triggered a shift to risk-off sentiment in global markets. Safe-haven assets like gold and US Treasuries saw brief inflows, although the bond market’s reaction was muted by changing expectations around Federal Reserve policy.
Fed Cut Odds Slip Amid Resilient Treasury Yields
Despite rising global uncertainty and weaker trade data, the Federal Reserve appears unlikely to cut interest rates in the near term. According to the CME FedWatch Tool, the probability of a rate cut in May is just 3.2%, with a 96.8% chance of no change. June’s meeting reflects a 31.8% chance of a cut, down from earlier forecasts that placed it near 50%.
Supporting the Fed’s hawkish hold is the US bond market. The 10-year Treasury yield hovered around 4.33%, a level that unwinds much of last week’s easing. Traders appear to be pricing out the possibility of a summer rate cut, suggesting growing consensus that the Fed will remain patient amid sticky inflation and mixed economic signals.
Canadian PM Carney Heads to Washington for Trade Talks
On the North American front, newly elected Canadian Prime Minister Mark Carney set to visit the White House for bilateral trade discussions with President Donald Trump. The visit comes at a critical time as both nations seek to modernize their trade relations amid the shifting global order. Markets will be watching closely for any signs of progress or policy divergence that could impact USD/CAD volatility.
Technical Outlook: US Dollar at Risk of Breaking Down
Technically, the US Dollar Index is at risk of deeper losses if it fails to hold support near the 99.80–100.00 zone. A clear breakdown below this range could expose the next support near 98.75, while resistance remains capped around 100.80–101.00. The Relative Strength Index (RSI) is weakening, indicating bearish momentum is building.
Currency traders are likely to remain cautious, with short-term positioning favoring further USD weakness if macro and geopolitical pressures persist.
Outlook: Navigating Uncertainty Across Trade, Policy, and Politics
As markets digest the triple blow of a widened US trade deficit, European political disarray, and rising global tensions, the US Dollar’s fate remains delicately poised. While the Fed’s reluctance to cut may offer some floor, broader investor sentiment appears to be tilting bearish on the greenback.
Upcoming trade talks, central bank commentary, and geopolitical updates will be crucial in shaping short-term price action across forex markets. For now, the path of least resistance for the dollar appears lower — unless a major diplomatic breakthrough or a surge in US data strength flips the script.
