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The US Dollar Index (DXY) has plunged into a historic nosedive, shedding over 3.5% this week and marking its worst performance in more than a year. The Greenback’s dramatic slide accelerated on Friday as traders braced for February’s employment report, which revealed a mixed bag of economic signals. Mounting expectations of multiple Federal Reserve rate cuts in 2025, coupled with growing economic uncertainty, have fueled a mass exodus of capital from the US dollar.
Adding to the turmoil, tariff-related volatility continues to rattle markets. US President Donald Trump has hinted at imposing fresh trade measures against Canada but has refrained from providing a concrete timeline, leaving investors on edge. The DXY is now struggling to maintain its grip on the 104.00 level, underscoring the scale of its devaluation.
Economic Data and Fed Signals Weigh on USD
February’s Nonfarm Payrolls (NFP) report fell short of expectations, with 151,000 jobs added compared to the forecasted 160,000. While this figure surpassed January’s 125,000, it was accompanied by a slowdown in Average Hourly Earnings growth, which dipped to 0.3% month-over-month from January’s 0.4%. Meanwhile, the US unemployment rate ticked up to 4.1%, further dampening market sentiment.
Federal Reserve officials have added to the bearish outlook for the dollar. Fed Governor Christopher Waller suggested the possibility of up to three rate cuts this year, reinforcing dovish market expectations. Federal Reserve Chair Jerome Powell also highlighted the challenges posed by ongoing policy uncertainty, complicating the central bank’s ability to navigate monetary adjustments. The CME FedWatch Tool now indicates a rising probability of a June rate cut, reflecting traders’ anticipation of easing measures.
Tariff Tensions and Technical Trends
President Trump’s vague hints at new tariffs on Canada have injected additional volatility into the market, with no clear timeline for implementation. This uncertainty has compounded the pressure on the DXY, which has broken below the 104.00 mark to revisit its lowest levels since November 2024. On the technical front, the 20-day and 100-day Simple Moving Averages (SMA) have confirmed a bearish crossover, signaling sustained negative momentum.
As the DXY spirals lower, markets remain fixated on the interplay between shifting Federal Reserve policy expectations and geopolitical trade tensions. With the interest rate differential between the US and other economies narrowing, the Greenback faces an uphill battle to regain its footing.
