On 4 March, President Trump confirmed that tariffs will take effect, which has led to a stronger US Dollar (USD) against various currencies. The DXY could rise to 108, reflecting shifts in financial markets, with equity markets declining by 3% in Japan and Korea.

Crypto markets displayed volatility, with the MVDA index of the 100 largest digital assets plummeting by 20% this week. This decline may influence broader market conditions and further defensiveness in FX.

A potential decline in January’s real spending figures and the core PCE deflator could negatively impact the USD. An expected monthly trade deficit of $110-120bn serves as a reminder of the ongoing goods deficit, which was $1.2 trillion last year.

With fresh tariffs on the horizon, the USD has strengthened, and some expect the DXY to reach 108. Equity losses in Japan and Korea suggest that investors are responding to shifting trade conditions with a degree of caution. A 3% decline in these markets reflects reduced confidence, possibly tied to concerns about global supply chains.

We have also seen heightened turbulence in crypto markets, with the MVDA index suffering a steep drop of 20%. This level of movement could influence how traders position themselves across other markets, particularly in forex. When capital moves away from riskier assets, defensive positions in traditional currencies tend to increase.

However, upcoming data poses risks to the USD. If January’s real spending figures show weakness alongside softer core PCE inflation data, the strength of the currency may be tested. Lower consumer activity often leads to cooling economic momentum, which could make foreign exchange markets more reactive.

Also worth mentioning is the monthly trade deficit, which is projected to land between $110bn and $120bn. Last year’s goods deficit stood at $1.2 trillion, which means the trade gap remains large. These figures, once confirmed, could factor into expectations for long-term USD demand and market behaviour.

For those tracking derivatives, there are a few things to note. A stronger dollar typically pressures commodities and risk-sensitive currencies, while weaker spending data might push traders to reassess rate expectations. A volatile crypto environment only adds to the need for adaptability.

As new data emerges, price actions should be watched closely, particularly in areas that respond sharply to shifts in trade and inflation expectations. Traders navigating these movements should be prepared for further fluctuations in both FX and equities as the market absorbs the latest developments.