DXY index: US dollar analysis ahead of Trump’s Liberation Day

The US dollar index (DXY) retreated slightly after soaring to the highest level since March 5 on Wednesday. It dropped to a low of $104.3, down from this week’s high of $104.6, after Donald Trump unveiled new auto tariffs. So, what next for the DXY index ahead of US GDP and personal consumption expenditure (PCE) data?

USA auto tariffs

The US dollar index has pulled back slightly after Donald Trump announced new tariffs on all imported vehicles, a move that threatens the industry. Unlike other tariffs, these ones will be universal and target all countries. 

The only difference is that automakers from Mexico and Canada will likely receive a lower tariff since the calculation will exclude US parts. 

These tariffs will be on top of the steel and aluminum tariffs that he announced a few weeks ago. As such, automakers in the US, Canada, Mexico, Japan, and the European Union.

American automakers will be hit hard for three main reasons. First, many of them rely on imported raw materials that the US does not have an adequate supply of. As such, they will have to pay an extra cost for that. 

Second, other countries will likely implement reciprocal tariffs on US vehicles, making them unaffordable there. As such, there is a likelihood that US auto exports will continue falling in the next few months. 

Third, these tariffs will likely lead to weaker demand as many consumers stay off. Economists expect that these tariffs will lead to higher prices of at least $4,000. At a time when the economy is slowing and credit card delinquencies is surging, there is a likelihood that auto sales will plunge. 

Donald Trump’s Liberation Day

The US dollar index is also in focus ahead of the so-called liberation day by Donald Trump. He has set April 2 as the day when the US will unveil reciprocal tariffs on imported goods from other countries. 

These reciprocal tariffs will involve the US implementing similar tariffs to those other countries charge. Many of the biggest trading partners will see no major tariff increase since they have little levies on US goods. 

These tariffs will hurt many countries in the emerging markets like India and Indonesia that have huge tariffs on imports. Analysts believe that these tariffs will ultimately hurt the US economy and its consumers. 

DXY index waits for key data

The US dollar index will be in the spotlight ahead of key economic data. The key data to watch will be the upcoming GDP and PCE numbers scheduled on Thursday and Friday. 

These GDP numbers are expected to show that the economy expanded by 2.3% in the fourth quarter after growing by over 3% in Q3. While the GDP data is important, its impact will be limited since the statistics agency has already published two estimates.

The DXY index will next react to next Friday’s PCE data on Friday. PCE is important data because it is the most important inflation figure. 

US dollar index technical analysis

The daily chart shows that the DXY index peaked at $110.18 earlier this year and then plunged to a low of $103.20. 

It has crashed below the 50% Fibonacci Retracement level. The index has also moved below the 50-day moving average. That is a sign that the ongoing rebound is part of a dead cat bounce.

Therefore, the US dollar index will likely resume the downtrend and retest the key support at $103.20, its lowest level this month.