The US Dollar Index, which measures the performance of the dollar against a basket of six major currencies, reached 110.17 points on January 13, 2025, the highest level since November 10, 2022. Currently, the index hovers around the 108 points level, with the biggest challenge being to break the resistance level represented by the 20-day moving average at 108.65 points.
What Factors Support the Greenback?
- Tariffs: Former President Donald Trump’s plan to impose tariffs on key sectors, such as semiconductors, pharmaceuticals, steel, aluminum, copper, and imports of cars from Canada and Mexico, is a major factor. He stated that these tariffs would exceed 2.50% in an effort to bring manufacturing back to the United States, lower taxes on domestic production, and create new jobs.
- Geopolitical Tensions: Ongoing tensions between Russia and Ukraine, and concerns about the war expanding, are strengthening the US dollar as a safe-haven asset.
- Diverging Monetary Policies: The US Dollar Index is made up of a basket of currencies, including:
- Euro (57.6%)
- Japanese Yen (13.6%)
- British Pound (11.9%)
- Canadian Dollar (9.1%)
- Swedish Krona (4.2%)
- Swiss Franc (3.6%)
Expectations indicate that central banks in Europe, the UK, Canada, and Sweden may continue lowering interest rates to support their economies. In contrast, the Bank of Japan is expected to continue raising interest rates to curb inflation.
As for the US Federal Reserve, the strong performance of the US economy and persistent inflation may push it to keep interest rates higher for a longer period, which would support the dollar against foreign currencies.
What Are the Markets Watching Today?
All eyes are on the Federal Reserve’s interest rate decision, with expectations for rates to remain between 4.25%-4.50%. Statements from Federal Reserve Chairman Jerome Powell are also closely watched, particularly regarding the future path of interest rates.
The question being asked is: Will Jerome Powell cave to pressure from President Donald Trump to lower interest rates, especially after Trump called for an immediate rate cut?
What About the Technical Analysis of the US Dollar Index?
The US Dollar Index is trading above the 50-day moving average at 107.61 points, which is considered an important support level. The main challenge is to break the resistance level at the 20-day moving average (108.65 points) and then reach the 110-point level.
- The Golden Cross between the 20-day and 50-day moving averages is still in place, which supports the possibility of further upside in the coming period.
- The Relative Strength Index (RSI) is currently at 47 points, indicating slight negative momentum. However, any upward breakout above the 50-point level could signal a new bullish trend for the US Dollar Index.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
