The US Dollar Index (DXY) declined further, dropping below 106.00 due to newly confirmed tariffs on Canada, Mexico, and China, provoking countermeasures from Canada and China. This situation has increased market volatility.
Canada introduced 25% tariffs on US goods worth C$30 billion, while China responded, intensifying global trade tensions. Economic indicators have hinted at stagflation, with slowing growth and persistent inflation raising concerns for the US economy.
Dollar Weakness And Trade Tensions
The DXY’s continued fall has seen it slip below both the 20-day and 100-day Simple Moving Averages, potentially leading to further losses toward the 105.50-105.00 range if downward pressure continues.
What we see now is a rapidly shifting set of pressures that could weigh further on the US dollar. The tariffs placed on Canadian and Chinese goods reaching North American shores have predictably led to retaliation, with Canada responding in kind and China taking additional steps. This sort of back-and-forth naturally stirs uncertainty, particularly among those watching international trade flows and real economic output. The consequences are already beginning to show, with traders questioning the broader health of the US economy.
The persistence of inflation alongside sluggish growth points to the classic problem of stagflation, which makes policy responses far trickier. If inflation remains stubborn while output weakens, policymakers find themselves forced to either allow inflation to linger or risk deepening the slowdown. That tension tends to keep markets on edge, especially when the Federal Reserve’s next moves remain unclear. A retreat in the DXY below both the 20-day and 100-day Simple Moving Averages confirms a broader hesitation on the dollar, suggesting traders are losing confidence in near-term strength.
Market Sentiment And Risk Appetite
With that in mind, price action suggests attention should remain on the 105.50-105.00 range—if bearish momentum persists, the next test could occur around that area. While short-term swings are always possible, the shift in sentiment appears well-supported by technical trends. Those managing positions tied to the dollar’s movement should remain aware of how these policies are driving risk appetite. Canada and China’s responses are not just retaliatory measures; they actively reshape market expectations. If concerns over stagflation increase, even standard technical levels may not offer much support.
