The easing of tariff tensions has led to a bounce in the US dollar and brings a familiar price level back into play.
The USDX has bounced above the 100 level and will need to find continued buyers to defend that area. A move to 104 would be the first target for the dollar.
The dollar has been on a rollercoaster move with highs near 110 after Trump’s election win. This year has seen confidence erode and analysts were bearish on the dollar’s role in the markets around a week ago.
“We don’t believe this is a short-term wobble. It’s the opening phase of a steady but far-reaching shift,” said Nigel Green, CEO of Devere Group.
“Dollar supremacy isn’t vanishing overnight, but its era of unquestioned dominance is fading. This decline is not a crash – it’s erosion”.
His comments were based on the idea that countries are looking to expand their customer base after the recent tariff chaos.
“There’s growing discomfort with the idea of the dollar being used as a political instrument,” which could create a “more fragmented system” in currencies.
The recent easing of tariffs between the United States and China has seen confidence return to the dollar in the short-term. However, it remains to be seen how much other nations can diversify. Chinese exports rose 8% over the year in April as companies rushed to avoid the incoming tariffs.
China has also complained about a US trade deal with the United Kingdom, which it sees as a means to hurt the country’s economy. Beijing said that the “basic principle” of trade deals is that they should not target other nations. The complaint is that Chinese exports to the UK cannot be used for leverage against the US.
The short-term trend is a bounce in the US dollar after a possibly overdone move. There could still be further tension over the coming weeks if the 90-day tariff pause carries on without any hint of a longer deal.
