The U.S. Dollar Index (USDX) tumbled 1.06% to close at 102.769 on Wednesday—marking its lowest reading in nearly six months—as global markets reeled from President Donald Trump’s live announcement of sweeping new tariffs targeting key trade partners. The dollar briefly touched a session low of 102.651, with the index trading well below its 200-period moving average, indicating the sharpest downward momentum since last year.

The move follows a chaotic market reaction to Trump’s televised tariff rollout, which included 34% on Chinese goods, 20% on the European Union, 32% on Taiwan, 24% on Japan, and a staggering 46% on Vietnam.

Traders immediately rotated out of dollar positions amid heightened concerns over slowing global growth, the potential for retaliatory trade barriers, and an increasingly hostile international business climate. Treasury yields sank to multi-month lows, while Fed funds futures now price in up to 80 basis points of cuts by year-end.

Technical Analysis

The 15-minute chart illustrates a textbook breakdown in trend structure. After holding steady around 104.04, the index collapsed below 103.20, breaking several minor support levels before a sharp drop to sub-103 territory. The MACD histogram flipped aggressively negative mid-session and only began narrowing by the close, indicating persistent selling pressure.

Picture: Dollar index tanks hard—bearish momentum dominates with signs of a technical bounce brewing, as seen on the VT Markets app

A temporary rebound around 103.20 was swiftly rejected, confirming it as new resistance. With 102.65 now the key floor, any breach lower could extend the decline toward 101.80, especially if inflation spikes and real yields compress.

Tariff Fallout Extends to FX Markets

Emerging market currencies rallied on the back of the dollar weakness, while the euro and yen saw moderate gains. However, the broader implication is an unanchored Fed policy outlook, with inflation poised to rise due to cost-push factors, even as growth metrics begin to deteriorate.

Fed officials have maintained a “wait and see” approach, but the scale of Trump’s tariffs has complicated forward guidance. While they might overlook a one-off price spike, markets now expect price stickiness—especially if companies seize the moment to raise prices under the guise of import shocks.

Cautious Forecast

If Thursday’s PCE inflation data confirms stickier pricing and weak consumption, the case for dollar downside strengthens. Risk assets are already under pressure, and the Fed’s room to stimulate through rate cuts may shrink if inflation expectations break out.

In the near term, volatility in the USDX is likely to remain elevated, with every policy comment or retaliatory measure acting as a catalyst. Traders should keep a close eye on the 102.50 support zone—a breach could trigger another wave of selling into the lower 101 handle.

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