The US Dollar continued its downward spiral into mid-April 2025, pressured by a perfect storm of stagflation worries, escalating trade tensions, and increasing political uncertainty. The Dollar Index (DXY) has now fallen for five consecutive weeks, slipping below key psychological levels and settling near multi-year lows. With a complex mix of inflation risks, weak consumer sentiment, and global volatility, the Greenback faces an uphill battle to regain strength.
Table of Contents
The US Dollar’s April Slide: Five Weeks of Losses
DXY Hits Three-Year Low Near 99.00
The US Dollar Index (DXY), a benchmark that tracks the value of the dollar against a basket of major currencies, broke below the critical 100.00 threshold and hovered near 99.00—levels not seen in nearly three years. This marked the fifth week in a row of declines, driven largely by falling US Treasury yields and investor anxiety surrounding the macroeconomic landscape.
Trade War Tensions: Tariffs Trigger Market Fears
Washington’s 145% Tariff on China and Beijing’s Retaliation
Investor sentiment took a sharp dive following the White House’s announcement of a massive 145% tariff on Chinese imports. In response, China imposed its own retaliatory tariffs of up to 125% on a broad range of American goods starting April 12, 2025. This tit-for-tat escalation raised red flags about a deepening global trade war.
President Trump’s revised trade policy introduced a baseline 10% tariff on all imports, with targeted surcharges on countries like China. These moves, while intended to boost domestic production, have introduced the risk of prolonged inflationary pressure and a potential slowdown in economic growth.
Economic Fallout: Rising Prices, Slowing Growth
While tariffs can temporarily increase prices, long-term restrictions on trade often reduce economic efficiency and consumer spending. Economists now fear a scenario in which inflation remains elevated while economic growth stagnates—a textbook case of stagflation.
Federal Reserve’s Policy Stance: Holding Steady Amid Chaos
Fed Keeps Rates at 4.25%–4.50%, Trims Growth Outlook
At its March 19 policy meeting, the Federal Reserve opted for caution, maintaining the federal funds rate at 4.25%–4.50%. The central bank downgraded 2025 GDP growth forecasts to 1.7% (from 2.1%) and raised inflation projections to 2.7%.
Powell’s Warning: “Tariffs Larger Than Expected”
In a press conference following the decision, Fed Chair Jerome Powell struck a measured tone. He acknowledged the newly imposed tariffs as an unexpected shock and emphasized the potential risks of rising unemployment and stubborn inflation. Speaking later at the Economic Club of Chicago, Powell noted signs of economic fatigue, including slowing consumer demand and weakening sentiment.
Trump official sparks confusion with claim of 10% tariff on Canadian goods
USD/CAD Rally: Canadian Dollar Surges as Currency Pair Breaks Down Below Key 1.4000 Level
Fed Officials Echo Concern: Risks Loom Large
Several Fed policymakers have expressed worry about the economic fallout of rising trade barriers:
- Christopher Waller described the tariffs as a “significant shock” and suggested that the Fed may be forced to cut rates even in an inflationary environment.
- Raphael Bostic warned that tariff-related uncertainty is putting the economy on hold, calling for a patient stance on rate adjustments.
- John Williams cautioned that while current policy is appropriate, tariffs are likely to weigh on growth and push inflation higher.
Trump-Powell Tensions Resurface
Political Pressure Mounts on the Fed
President Trump reignited tensions with the Federal Reserve, claiming that Powell should have already slashed interest rates. In a pointed Truth Social post, he said Powell’s removal “could not come fast enough.” This public clash, reminiscent of past confrontations, comes amid growing demands for a more accommodative monetary policy.
Despite these comments, Powell reaffirmed the Fed’s independence, a stance that continues to enjoy support among many lawmakers on Capitol Hill.
Inflation Fears: Consumers Brace for Higher Costs
Inflation Expectations Rise Sharply
While inflation continues to run above the Fed’s 2% target, recent surveys show Americans increasingly expect prices to climb. The New York Fed’s latest Survey of Consumer Expectations reveals that consumers now anticipate a 3.6% rise in prices over the next 12 months—the highest since late 2023. Food and rent are the primary sources of anxiety, even as expectations for gas and housing prices remain relatively stable.
Labor Market Remains Resilient—For Now
Despite rising costs, the labor market remains surprisingly strong. This resilience complicates the Fed’s path forward, as officials try to balance inflation containment with economic stability.
Technical Outlook: DXY Shows Strong Bearish Momentum
Key Support and Resistance Levels
The DXY’s recent slide has broken below its 200-day simple moving average (SMA) at 104.63, a bearish signal. Momentum indicators confirm the downside trend:
- Relative Strength Index (RSI) has plunged into oversold territory near 27
- Average Directional Index (ADX) sits above 52, indicating a strong bearish trend
Support levels to watch include:
- 99.01 (April 2025 floor)
- 97.68 (last tested in March 2022)
Resistance levels in case of a rebound:
- 100.68 (early April resistance)
- 104.60 (55-day SMA)
- 106.05 (100-day SMA)
- 107.66 (February 28 high)
Looking Ahead: Uncertainty Reigns as Risks Mount
With inflation pressures, policy indecision, trade wars, and political turbulence all converging, the US Dollar faces a volatile path in the near term. Market participants will look closely at next week’s PMI data and additional comments from Fed officials for clues about potential policy shifts.
For now, the Greenback’s weakness appears to be more than a passing phase—investors should brace for a period of sustained uncertainty.
Stay tuned for our weekly updates as the US Dollar navigates this complex and shifting landscape.