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    Dollar Weakens to Trump’s Softer Trade Stance

    January 24, 2025

    Key Points

    • USDX falls to 107.58, down from an opening level of 108.02, with an intraday low of 107.34, reflecting a 0.42% decline.
    • Trump’s measured approach on China trade relations eases market fears, contributing to the dollar’s slide.
    • The BOJ’s decision to hike rates to 0.5%, a 17-year high, adds pressure on the greenback.

    The U.S. Dollar Index (USDX) extended its losses, dropping to 107.58, as traders reassessed their expectations following President Donald Trump’s softer stance on China.

    Trump emphasised his preference for negotiation over tariffs, reassuring markets that immediate aggressive measures were unlikely. This shift in tone, alongside his comments at the World Economic Forum in Davos, has weighed on the dollar as risk appetite improves.

    Despite an earlier attempt to push higher to 108.33, the dollar failed to sustain gains and drifted lower as market sentiment turned cautious. Traders are increasingly pricing in the likelihood of prolonged trade negotiations rather than abrupt tariff impositions.

    BOJ Rate Hike Accelerates Dollar Decline

    Adding to the dollar’s downward pressure, the Bank of Japan (BOJ) announced an interest rate hike to 0.5%, the highest level in 17 years. This policy shift drove the yen higher, pushing USD/JPY down as traders rotated into the yen amid expectations of further monetary tightening.

    See also: Yen Gains After BOJ Rate Hike, Ninja Drops to 155.21

    The BOJ’s decision has bolstered demand for Asian currencies, with China’s yuan (USDCNY) hitting a six-week high and the Australian dollar (AUD/USD) climbing to a five-week peak, signaling renewed investor confidence in the region.

    Technical Analysis

    The USDX chart reflects a sustained downward trend, with key technical factors suggesting further weakness. Immediate support is seen at 107.35, with a break lower exposing the next key level at 107.00.

    Picture: US Dollar Index declines to 107.58, facing resistance at 107.80 with bearish momentum strengthening, as seen on the VT Markets app.

    The index faces strong resistance at 108.33, with a move above this level required to reverse the current downtrend. The MACD remains in negative territory, signalling bearish momentum. Short-term moving averages (5,10,30) suggest ongoing selling pressure as the dollar struggles to find support.

    The dollar’s outlook remains cautious as markets digest Trump’s evolving trade stance and the BOJ’s monetary tightening. Upcoming economic data, including European and U.K. PMI figures, will further influence currency dynamics.

    Traders are closely monitoring key levels, with further declines likely if bearish momentum persists.

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