US Dollar mildly recovers as traders assess fresh tariff talk

• Conflicting White House statements regarding additional levies on Chinese imports create choppy market conditions.
• Investors expect no immediate rate cuts in the first half of the year, aligning with the robust performance of the US economy despite limited Fed official remarks.
• Analysts still attribute the US Dollar’s underlying strength to the US’ enduring economic advantage relative to global peers.

The US Dollar trades flat on Wednesday after two days of losses as the correction aims to continue. Markets are trying to measure the impact of the 10% levy on Chinese goods that President Trump announced on Tuesday. The US Dollar Index (DXY) tests the 108.00 mark and is set to head to the lower end of 107.00. On the Federal Reserve (Fed) side, the bank is in media blackout and with no high-tier economic reports, markets are left with no guidance to bet on the next steps of the data-dependent Fed.

Daily digest market movers: Mixed signals intensify tariff confusion as Fed blackout continues

• President Trump revealed a potential 10% duty on products from China, linking it to broader concerns about fentanyl flows and reiterating that other nations might face tariffs too. This follows earlier rumors that the US administration might hold off on immediate measures, underscoring the contradictory rhetoric.
• Strong US Dollar backdrop remains primarily driven by the US economy’s standout growth despite swirling headlines on trade policy. Analysts suggest that once the tariff fog clears, the US Dollar could reassert its dominance.
• Fed media blackout: Ahead of Chair Powell’s post-decision press conference on January 29, officials have gone quiet. Markets widely predict one rate cut in July, consistent with robust US data.
• Uncertainty around tariffs is heightening volatility, yet currency strategists advise traders to look beyond day-to-day political noise as longer-term US economic momentum remains supportive for the Greenback.

DXY technical outlook: Persistent selling pressure weighs, key levels in play

After bears conquered the 20-day Simple Moving Average (SMA), the outlook turned somewhat bearish as the DXY is now vulnerable to further losses. Should the DXY wish to revive its bullish trajectory, it must overcome 109.30 convincingly.

But failure to defend near-term support levels surrounding 107.50 to 108.00 could spark additional downside. The Greenback’s fundamental posture still leans positive, anchored by economic strength and cautious Fed policy expectations.