Tariff's Supporting The Dollar With a Sluggish US Economy
- Mar 4
- 3 min read
Updated: Mar 17
GBP : GBP/USD trading near three month high
Following advances from the previous session, the GBP/USD pair declines, opening the day at about $1.2680. The pair is still in an upward channel, according to technical analysis of the daily chart, which points to a sustained bullish bias. The pair maintains above the nine- and 14-day Exponential Moving Averages (EMAs), bolstering short-term strength, while the 14-day Relative Strength Index (RSI) remains above 50, indicating prolonged positive momentum. The three-month high of $1.2724 is the first point of resistance for GBP/USD, with a possible advance toward the upper limit of the channel at $1.2780. The pair may move toward the psychological resistance at $1.2800 if it breaks out above this level.
The 14-day EMA at $1.2613 and the nine-day EMA at $1.2639 provide the first support on the downside. A decline below these levels would reduce momentum and highlight the channel's lower barrier, which is close to $1.2560. The pair might be exposed to the February low of $1.2249 if there is a clear break below the channel, which would change the bias to bearish.
EUR : Euro remains in the spotlight
In the early hours of Tuesday, the single European currency is trading close to the 1,05 mark, but obstacles that have weighed on the European currency in recent months still exist, making further increases difficult. Even if there have been turbulent geopolitical developments, including a strong "bras defer" between President Zelensky, the United States, and the European Union, the overall market picture is still the same as it was in the previous weeks. This development has completely validated my ideas from earlier articles, when I assigned the possibility that the exchange rate would stay between the recent lows of 1,0175 and levels just above 1,05 a lot of weight. However, the probability of an abrupt decompression and a breach of crucial levels is gradually beginning to rise as the exchange rate has been compressed within its current trading range.
The direction of the exchange rate in the near future will be determined by geopolitical developments, President Trump's "tariff dance," and central bank actions, all of which continue to be high on investors' agendas.
The only noteworthy items on today's schedule are the European Union's unemployment rate and a few comments by Fed officials from across the Atlantic. With little prospect of a surprise, many investors are keeping a wait-and-see approach ahead of Thursday's anticipated 25 basis point decrease in key interest rates by the European Central Bank.
USD : Tariff's supporting the Dollar with a sluggish US economy
Tax cuts in late 2017 and tariffs in March 2018–August 2019 were a major factor in the dollar's strength during President Trump's first term because fiscal support was in place before trade conflicts erupted. The current administration, on the other hand, is enacting protectionist policies at an early stage without the same level of domestic support. Although the US has increased tariffs on Canada and Mexico, the dollar's upside potential from tariff developments has been limited because of sluggish domestic economy, which caused markets to price in 75 basis points of Federal Reserve easing this year, up from 50 basis points.
The performance of the US equity market may have an impact on the dollar in the near future. Trade wars have historically affected stocks, and 25% tariffs on major trading partners may cause investors to become defensive, which could support safe-haven currencies like the Swiss franc and Japanese yen, which could push the USD/CHF and USD/JPY lower if US stocks fall. The imposition of tariffs also underscores Washington's reliance on tariff revenue for fiscal policy, meaning that current tariffs may not be immediately reversed and may be expanded into more comprehensive measures by April. President Trump is scheduled to discuss related policy initiatives in his speech to Congress at 9 p.m. ET (2 a.m. GMT).
Currencies linked to commodity exports or highly open economies may continue to be under pressure given the administration's emphasis on relocating high-paying manufacturing jobs to the US.
The dollar is nevertheless anticipated to gain strength in the first half of the year, notwithstanding the short-term volatility. But the road might not be level. The DXY index, which is highly impacted by European currencies, is still trapped between pressures from tariffs and rising European defense expenditures. Unless there is a sharp drop in US stocks, DXY support at 106.15/35 might hold.
