The US Dollar is facing heavy pressure from newly released economic data that came out weaker than expected, with worries mounting due to trade war escalations that could refuel inflation and slow global growth.
As traders and investors keep an eye on tariffs and data, the US dollar index consolidated close to its March lows. Global trade tensions from Trump’s tariff intentions raised the possibility of EU retaliation and cautious confidence in the UK over trade negotiations.
Trump’s Reciprocal Tariffs Take Effect
President Trump placed his long-awaited reciprocal tariffs in motion yesterday, imposing a 10% baseline tariff on all imports to the US, with higher tariff rates targeting certain countries.
The announcement also included a 34% tariff on Chinese imports and 20% levies on the European Union and Japan. ⁽¹⁾
Trump Unveils Reciprocal Tariffs on Countries.
Source: @WhiteHouse on X
Financial markets around the world experienced significant selloffs as investors prepared for a possible trade war.
Concerns about disrupted supply chains and higher consumer prices were raised as China threatened to take countermeasures against the additional tariffs. The EU threatened to retaliate if talks with Trump failed. ⁽²⁾
The US Dollar Index declined 1% after the event while gold rose to a new record high at $3,168.
Recession Concerns
Recent economic data introduced new pressures for the US Dollar and the US economy. Other incoming data points are expected to underperform in Q1 2025 as a result of trade war escalations.
March’s ISM Manufacturing PMI dropped back into contraction territory, with the number coming out at 49.0, less than February’s 50.3 and below the 49.5 forecast. The data refueled concerns in the manufacturing sector.
The JOLTS job openings report for February also revealed a decline in job openings to 7.57 million, down from 7.76 million in January. Layoffs remained low, which indicates a typical sign of stability in the labor market. ⁽³⁾
US GDP for Q4 2024 beat estimates with the US economy expanding 2.4% but may be lower in the future due to downgraded forecasts from the Federal Reserve. ⁽⁴⁾
ADP Employment for March showed some positive signs for the labor market with an increase of 155K in the private sector. ⁽⁵⁾
Traders and investors are now shifting their focus to Friday’s March NFP report, forecasted at 139K. Scheduled for the same time, the unemployment rate is expected to remain steady at 4.1%, while average hourly earnings are expected at 0.3% MoM.
Federal Reserve: What’s Next on Interest Rates?
The Federal Reserve held interest rates steady at 4.50% during its previous meeting but expressed growing concerns about economic uncertainty due to President Trump’s tariff plans.
The Fed downgraded its GDP growth forecast for the year to 1.7% from 2.1% and raised its inflation forecast to 3%, signaling challenges ahead as inflation remains sticky. The Fed remains cautious on interest rates over fears that Trump’s tariffs could push prices higher while threatening economic stability. ⁽⁶⁾
Surveys show declining consumer and business confidence, amplifying worries about the tariffs’ impact on jobs and investment. Consumer and business confidence surveys have also shown declining numbers.
The Fed’s outlook remains unknown due to these tariffs, which could spike inflation in the short term and slow economic growth. Goldman Sachs recently raised its recession odds to 35% from 20%, indicating weak performance for the US economy.
Financial markets are still expecting two 25-basis point rate cuts this year to help economic growth, with policymakers holding steady for now to assess incoming data amidst the uncertainty. ⁽⁷⁾
US Dollar vs. Gold Performance
Source: TradingView (USD: Blue, Gold: White)
Gold has outperformed the US Dollar since the beginning of 2025, due to weak US economic data, rate cuts from global central banks, trade wars, and other geopolitical tensions.
US Dollar Outlook
The US Dollar is expected to remain volatile, however the general direction remains unclear. If Trump’s tariffs refuel inflation and make the Fed more hawkish, the greenback could see some short-term support. However, weak economic data and tariff pressures could cause the US economy to slow, potentially weighing on the USD.
