The US dollar is showing strength as positive news from the services sector boosts confidence in the American economy. However, this optimism is tempered by concerns over trade policies, weaker demand, and the potential impact of new tariffs. As traders weigh the dollar’s resilience against these uncertainties, its future performance will likely depend on how upcoming trade decisions and economic trends play out.
The US dollar index (USDX) remained steady around 104.3 on Tuesday, hitting its highest level in three weeks after stronger-than-anticipated US services data boosted the currency.
The index briefly surged to 104.106 before easing to 103.976, reflecting renewed confidence in short-term US economic strength while also signalling growing caution about future uncertainties.
Recent data highlighted a recovery in US business activity, with robust performance in the services sector balancing out further declines in manufacturing output.
This improvement supported the dollar’s gains, particularly against the yen, where it posted one of its strongest relative increases.
However, optimism was tempered by a sharp drop in expectations for future business activity, now at their second-lowest level since October 2022.
Survey participants cited sluggish demand, trade policy uncertainty, and the potential impact of upcoming tariffs as key concerns.
While comments from US President Donald Trump have helped ease some fears by hinting at a more selective tariff strategy, his renewed pledge to impose levies on sectors such as automotive and pharmaceuticals has left markets on edge.
Investors are factoring in the risk of sector-specific disruptions, which could influence currency movements and investment flows in the near term.
The US dollar index recently attempted to break past the 104.00 resistance level, reaching a high of 104.106 before consolidating.
This followed a recovery from a recent low of 103.374, where strong support helped halt the decline.
Since then, the index has been trending upward within a narrow range, with key moving averages (5, 10, and 30) flattening and converging—a sign of market indecision near resistance.
The MACD indicator also points to waning bullish momentum, with the histogram weakening and the MACD line approaching a potential crossover with the signal line.
Unless buyers regain momentum and drive the index firmly above the 104.10 threshold, there is a risk of sideways movement or a pullback toward key support levels at 103.80 or 103.61.
As the US dollar index consolidates below resistance, traders may remain cautious until there is more clarity on US trade policy and upcoming economic data.
The dollar could extend its rally if trade measures turn out to be less severe than expected.
However, any escalation—particularly involving auto imports or medical products—could dampen market sentiment and drive demand for safe-haven assets.
In the short term, the dollar is expected to trade within the 103.60–104.20 range, with a slight upside bias depending on developments in trade policy and global risk appetite.
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