The US Dollar Index (DXY) is trading around 104.20, showing limited movement after soft US economic data. Recent releases include a disappointing ISM Manufacturing PMI at 49, below the expected 49.5, and a drop in Job Openings to 7.56 million in February.
The ISM Manufacturing Employment Index fell to 44.7, indicating job cuts, while the Prices Paid Index rose significantly to 69.4, suggesting renewed inflation. Fed commentary reflects uncertainty, with Chair Barkin noting that current data is challenging to interpret.
Limited Dollar Momentum Amid Mixed Data
Market activity remains cautious ahead of the forthcoming Nonfarm Payrolls report. The DXY fluctuates between 104.00 and 105.00, with technical indicators mostly signalling bearish trends.
Resistance levels are identified at 104.435, 104.841, and 104.847, while support sits near 104.169, 104.165, and 104.128. Concerns regarding economic stagnation prevail, impacting risk sentiment among traders.
Tariffs serve as customs duties aimed at benefiting local producers by making imported goods less competitive. They differ from taxes in payment timing and purpose, and economists debate their long-term effects on the economy.
Trump’s tariff plans intend to support the US economy by taxing imports primarily from Mexico, China, and Canada and using the revenue for tax cuts. In 2024, these nations comprised 42% of US imports, with Mexico as the largest exporter.
What we’re looking at is a market environment where the greenback remains broadly rangebound, underpinned by softer-than-expected economic indicators and softer job market dynamics, but still facing upward pressure from inflation-related components. Purchasing Managers’ Index data came in below forecast, with employment figures inside the report suggesting continued weakness in hiring across the manufacturing sector. An Employment Index falling below 45 is rarely brushed aside—it often signals steady job shedding, rather than isolated contractions.
Conflicting Signals Challenge Fed Outlook
In contrast, the sharp movement in the Prices Paid sub-component raises alarm bells. Climbing to just shy of 70, this figure implies input cost pressures are building again, potentially undermining hopes that disinflation will continue unimpeded. When considered together, weaker activity and rising prices complicate policymaker pathways. Barkin drew attention to this very dilemma—current macro signals don’t provide a clear path toward rate adjustments.
For traders in our space, particularly those eyeing short-dated dollar positions where rate expectations have high sensitivity, this divergence between employment softness and inflation stickiness matters materially. This makes upcoming labour reports all the more relevant—not just for headline job additions, but also for wage trends and participation rates.
Meanwhile, technical patterns in the Dollar Index haven’t managed to sustain a breakout or breakdown, holding within a fairly contained band. The upper zone near 104.84 has repeatedly acted as a ceiling without generating downside momentum strong enough to breach 104.12 support with conviction. Indicators like RSI and MACD remain tilted downward, hinting that the dollar may stay under modest selling pressure unless a surprise triggers fresh demand.
Market hesitation doesn’t exist in a vacuum, of course. Economic stagnation fears feel more pronounced when policymakers appear caught between two undesirable outcomes: tightening into weakness or easing into inflation. In such cases, option markets tend to widen implied volatility ahead of data releases, pricing in uncertainty rather than asserting directional bias.
We should also bear in mind that additional macro themes are bubbling in the background. Policies proposed on import taxation might appear removed from currencies at first glance but deserve closer study. Increasing levies on inbound goods from major trade partners shifts trade balances marginally—though the actual transactional flows aren’t immediate, sentiment can change fast. When nearly half of imported goods originate from just three countries and all face higher entry costs, pricing channels move, affecting inflation, company margins, and eventually rates or forward guidance.
Once import tariffs stretch far enough to fund tax cuts on the domestic front, the market must quantify whether consumer spending adjusts meaningfully and whether revenue assumptions are credible. That could reinforce expectations of reflationary bias, which interest rate differentials would once again have to digest.
In the short term, the reaction function of the Fed, particularly around upcoming employment numbers combined with inflation gauges, will likely hold more weight than isolated trade policy headlines. We must prepare for two-way price action, and where volatility offers reasonable premium, fade extreme moves when they run into confirmed resistance or support clusters—at least until better directional clarity emerges.
