Trump's tariffs have caused the dollar to plummet, markets pay attention to US ADP data

On the Asian session on Wednesday, the US dollar index fell below the 106 mark, and the U.S. ADP employment change data will be released on Wednesday, as well as the ISM Service Industry Purchasing Managers Index (PMI) survey results will be updated.

Analysis of major currencies

Dollar: As of press time, the U.S. dollar index hovered around 105.61. The U.S. dollar index (DXY), which measures the value of the U.S. dollar against six major currencies, fell again on Tuesday, expanding its Monday decline and losing key support at 106.00. Investors sold the dollar after the U.S. confirmed new tariffs on Canada, Mexico and China, but did not approve the extension at the last minute. Market volatility has been further exacerbated as Canada and China announced countermeasures. Technically, the U.S. dollar index continues to decline, falling below the 20-day and 100-day simple moving averages (SMA), which are about to form a bearish cross around 107.00. This pattern may herald a further downward momentum in the U.S. dollar, as the relative strength index (RSI) and moving average convergence divergence (MACD) indicators confirm greater selling pressure. If the bearish cross is avatradescn.completed, it may further decline to the 105.50-105.00 range in the short term. It is necessary to rebound to above 107.00 in order to turn the near-term prospects back to neutral.

Euro: As of press time, Euro/USD hovered around 1.0619, Euro/USD hit the accelerator on Tuesday, soaring 1.4% and climbing 140 points on a single trading day as the market sells the dollar and bets on US President DonaldDe Trump will find reasons to reclaim his own tariff threat. Key figures for Europe and the U.S. will be released later this week, but trade war rhetoric dominates mid-week. Technically, major technical resistance is beginning to increase. The 200-day exponential moving average (EMA) waits around 1.0635 and is used to messing up the originally stable trend. Technical oscillators are also trapped in overbought areas, meaning buyers may quickly run out of fuel and trigger a new round of bearish buying.

GBP: As of press time, GBP/USD hovered around 1.2789, and GBP clamped on early trading gains on Tuesday, with the pound sterling rising against the US dollar (USD) extended to two days as US President Donald Trump tariffs on Mexico, Canada and China took effect. Although the market is risk averse, traders will punish the dollar as the economic outlook fades. Technically, despite hitting a new year-to-date (YTD) high of 1.2753, the GBP/USD pair has slightly declined as market participants digested U.S. tariffs. Buyers lack the strength to test the 200-day simple moving average (SMA) 1.2785, and if cleared, the pair could cause it to fall to 1.2800. On the other hand, if GBP/USD falls below 1.2700, the seller will be prepared to push the price toward the 100-day moving average of 1.2627, followed by 1.2600.

Summary of news from the foreign exchange market

1. Global tariffs have been further escalated, and the market raised the Federal Reserve's May interest rate cut expectations

On March 4, the price of avatradescn.comEX gold rose 0.93% to $2,928.20/ounce, and the Shanghai gold owner rose 0.53% to 679.38 yuan/gram. In terms of tariffs, after the unreasonable imposition of tariffs by the United States, we began to counteract yesterday, imposing a 15% tariff on US chicken, cotton, etc. and a 10% tariff on sorghum, soybeans, pork, beef, etc. In terms of interest rate cuts, the Federal Reserve Williams said that the monetary policy is in a good state and can be adjusted as needed. At present, it is not believed that the interest rate policy needs to be changed. The latest CME "Federal Observation" data shows that the probability of keeping interest rates unchanged in March is 95%, the probability of cutting interest rates by 25 basis points is 5%, the probability of maintaining the current interest rate unchanged by May is 57.4%, the probability of cutting interest rates by 25 basis points is 40.6%, and the probability of cutting interest rates by 50 basis points is 2%. Overall, the tariff clash between China and the United States has further increased global uncertainty, and we will pay attention to the change in the probability of the Federal Reserve's interest rate cut in May.

2. US media: The IRS plans to lay off nearly 45,000 employees

According to the Associated Press, two people familiar with the matter revealed that the IRS is drafting a plan to prepare forIts workforce of up to 90,000 has been cut by as much as half through various means such as layoffs, natural reductions and providing incentive buyouts. These layoffs are part of the Trump administration's attempt to reduce the size of federal government employees through the government efficiency department Musk is responsible for, including closing some agencies, laying off almost all probationary employees who have not yet received civil servant protection, and providing a buyout of service to almost all federal employees through a "delayed resignation program" to rapidly reduce the number of government employees.

3. The EU strongly condemns the United States for imposing tariffs on Canada and Mexico

European avatradescn.commission spokesman Orov Gill issued a statement on the 4th for criticizing the United States for imposing tariffs on Canada and Mexico, and called on the US to reconsider its trade policy. "We call on the United States to reconsider its practices and strive to find a rule-based solution that benefits all parties' cooperation," Gill said in a statement issued by email, according to media reports. He stressed that at a time when international cooperation is more important than ever, the U.S. move could disrupt global trade, damage major economic partners, and create unnecessary uncertainty.

4. The trade war shakes Deutsche Bank's hawkish view on the Fed. It is no longer impossible to cut interest rates this year.

The economic team of Will Bank holds the most hawkish view on the Fed's 2025 policy, and they predict that the Fed will not cut interest rates this year. While this remains the team’s official position, chief U.S. economist Matthew Luzzetti acknowledged that the impact of Trump’s new tariffs could endanger that forecast. “You’ve certainly started to see some negative effects of trade uncertainty in the economic data,” Luzzetti said. “If that impact expands and is reflected in weak labor market data, the Fed could cut interest rates this year.” However, Luzzetti said Deutsche Bank wants to see how long the tariffs will last before changing its forecast for the Fed.

Institutional View

1. Institutional: The trade war may force the Bank of Canada to further cut interest rates to 2%. Doug Porter, chief economist of the Montreal capital market, predicts that the Bank of Canada will cut interest rates four more times this year due to US President Trump's high tariffs and Canada's retaliatory measures. This will bring the Bank of Canada's policy rate to 2% in July. Porter previously expected the Bank of Canada's rate cut cycle to end at the 2.5% interest rate level. Porter said the risk is that the bank could cut interest rates further “if the Bank of Canada is satisfied with the inflationary background that is prevalent later this year.” This will put pressure on the Canadian dollar, although the Canadian dollar remained stable in trading on Tuesday. Porter does not rule out the possibility that the US dollar will rise above 1.50 against the Canadian dollar.

2. Deutsche Bank: Tariffs may trigger a weakening trend in the US dollar

The weakening of the US dollar is a bit unexpected, as analysts expect the dollar to strengthen due to U.S. tariff measures. "Tariffs are just a tax, so they represent fiscal austerity," wrote George Saravelos, an analyst at Deutsche Bank's research division. At the same time, policy uncertainty is also rising. Therefore, the market's expectations of "the growth gap between the United States and the rest of the world" are reasonable. Saravelos added that the dollar's safe-haven position may also weaken. Saravelos is neutral about the dollar outlook, but "we are starting to be more open to the outlook for the overall weakening of the dollar."

3. Bank of America: The implicit volatility of the pound may rise after a brief correction

Kamal Sharma, a foreign exchange strategist at Bank of America, said in a report that a key indicator of pound price volatility may rebound this month after the recent decline from last month's high. LSEG data shows that the three-month pound implied volatility trading was around 7.2%, and hit a high of about 10.4% on January 13. He said the decline in volatility reflects to some extent the improvement in UK economic data. "However, we believe it is wise for institutional and corporate investors to hedge the risks of rising volatility in the avatradescn.coming month." He said that volatility could rise before the release of important UK data, the Bank of England rate resolution and the UK budget. On March 26, both the budget and UK inflation data will be released, and Sharma said, "Volatility is particularly challenging."

The above content is all about "[Ava Foreign Exchange Decision Analysis]: Trump's tariff imposition has caused the US dollar to plummet, and the market is paying attention to the US ADP data". It is carefully avatradescn.compiled and edited by the Avatrade Foreign Exchange editor. I hope it will be helpful to your transactions! Thanks for the support!

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