The US Dollar Index (DXY) has declined to a three-year low of 99.02 amid rising tensions with China. The index has since bounced to around 99.70, but remains on a downward trend for the second consecutive day.
China announced additional tariffs on US imports, raising them from 84% to 125%, effective April 12. This news has contributed to market concerns regarding an impending US recession.
Technical Analysis and Market Indicators
Technical analysis indicates ongoing pressure on the DXY, with the index trading below moving averages. Indicators suggest a persistent bearish momentum, lacking signs of being oversold.
Tariffs function as customs duties aimed at protecting domestic industries by making imports more expensive. While they generate government revenue, they differ from taxes as they are prepaid at ports.
The debate over tariffs among economists varies, with some advocating for their protective benefits, while others warn of potential long-term economic drawbacks. Former President Donald Trump’s tariff strategy emphasizes supporting the US economy and reducing personal income taxes through tariff revenue.
That the US Dollar Index (DXY) has sunk to levels not seen in three years says much about the current state of macro sentiment. After falling to a low of 99.02, the slight recovery to 99.70 hasn’t done enough to shift the trend, which remains weak into the second straight session. Momentum on the downside is steady, and from our view, the absence of any oversold readings shows there’s still room for weakness.
Market reactions reflect not only concerns around tariff retaliation, but also the wider nervousness over a slowing US economy. On 12 April, Beijing’s decision to raise tariffs on American goods to as high as 125% deepens that anxiety. For those watching closely, this isn’t simply a one-off tit-for-tat measure—it speaks to souring trade terms which can easily echo through broader macro indicators. Those policy shifts, and the timetable attached to them, were not hidden surprises; traders have had ample time to price in these adjustments. Therefore, the continued direction of the DXY tells us a fuller story: it’s not just about tariffs. It’s about confidence—or rather the lack of it—on the dollar’s near-term trajectory against a backdrop of geopolitical tension and possible domestic slowdown.
Economic Implications and Market Response
Technically, the daily chart structure remains vulnerable. Prices are still trading comfortably below key moving averages, and there’s not been any real test or break above short-term resistance levels this week. That tends to be a concern if one is long the dollar or using dollar-denominated products. Momentum indicators—ones we trust for early signs of reversal—are still leaning south, yet they’re not stretched. That keeps the door open for a measured descent without needing a pause or relief bounce to reset.
Placing this in economic terms, tariffs function as levies at entry points, making imported goods less competitive and ideally supporting domestic manufacturing. While they fill public coffers, they’re not directly visible to the taxpayer in the same way as income deductions, and that can alter how they’re viewed politically. The idea is to redirect consumer patterns and secure local employment. However, the broader academic debate remains fiercely divided. Proponents argue they create breathing space for domestic recovery, though many others are keen to point out how these measures have historically fed into cost-push inflation and weaker consumption over time.
Under Trump’s earlier policy framework, the emphasis was always twofold: strengthen internal demand and reduce personal tax reliance by leaning into protected trade. That policy lens is driving renewed discussion, especially if the playbook sees a revival in upcoming cycles. For now, however, it’s the market response that deserves the spotlight, not the ideology behind it.
We are entering a stretch that may feel tightly wound; volatility tends to cluster after events like these. With implied vols on dollar pairs beginning to widen and cross-asset correlation leaning heavier, it’s not the time to look away. Risk placement is becoming more precise now, and skew in options markets is hinting that larger players are positioning defensively, not eagerly. That should give pause before applying leverage to directional views without layered hedging.
In these types of scenarios, directional confidence often gets overestimated while tail risks build quietly. With macro data releases stacked across coming weeks alongside ongoing trade rhetoric, some assets may move more than models suggest. It’s that kind of environment—where pricing mechanisms get stretched—that tends to test conviction.
