US Dollar Declines Following Trump’s Remarks

Investors Cash in Amidst Trade Tensions and Holiday Lull

After President-elect Donald Trump’s inauguration, the US dollar faced a decline as investors cashed in their profits amidst ongoing trade tensions and a holiday pause in bond markets. Early indicators from the incoming administration suggest a deliberate approach to tariffs and fiscal expansion, keeping market participants on their toes.

Focus on Federal Reserve’s Upcoming Decisions

The market’s attention remains on the Federal Reserve’s upcoming, data-driven decisions, with May expected to be a critical month for potential policy shifts. The US Dollar Index (DXY) exhibited volatile trading, dipping towards 108.30 as markets awaited further details on Trump’s economic strategies. Trading floors in the US remained closed in observance of Martin Luther King, Jr. Day.

Market Movers: USD Affected by Delayed Tariff Signals

Potential policy changes are expected to hinge on discussions in Washington. Multiple sources report that the new administration will form a task force to assess the potential impact of tariffs on Canada, Mexico, and China before implementing broad measures. During his inaugural speech, Trump alluded to a tariff plan for these countries, but specifics were lacking.

Holiday Slows Market Activity

The holiday closure significantly slowed market activity, with the US bond market shut down. The 10-year yield held near 4.60%. Traders are poised to monitor Tuesday’s developments for fresh signals on inflation concerns and interest rate decisions. The CME FedWatch Tool indicates that a hold is priced in for this month’s Federal Reserve meeting, with strong odds of another hold in May.

Technical Outlook for the DXY: Rising Vulnerability

The US Dollar Index struggled to maintain its position below 109.00 due to profit-taking and moderated bond yields. The breach of the 20-day Simple Moving Average (SMA) near 108.50 highlights increasing vulnerability for the Greenback. Should buying interest fail to materialize, the DXY’s broader uptrend could face more significant setbacks. Nonetheless, expectations of continued US economic strength may eventually attract new bids, keeping markets alert for any policy-driven reversals.