Dollar Weakens Amid Concerns Over New TariffsThe U.S. dollar traded weaker on Thursday, dropping 0.22% in the DXY index, despite the release of economic figures that slightly exceeded market expectations. This negative move becomes technically significant as it occurs near the 200-period moving average, a key level that was breached earlier in March, placing the greenback under greater short-term selling pressure.
The key economic data released was the Q4 2024 Gross Domestic Product (GDP), which showed an annualized growth rate of 2.4%, marginally above the expected 2.3%, though representing a notable slowdown from the previous quarter’s 3.1%. This growth was primarily driven by consumer spending, which rose 4%, its fastest pace since Q1 2023, and higher government expenditures (3.1%), partially offsetting declines in fixed investment and exports.
Despite the apparent economic optimism suggested by these figures, the underlying strength of the dollar remains questioned due to recent trade policy decisions by the Trump administration and the significant deterioration in consumer sentiment during Q1 2025. Particularly noteworthy is the announcement of new 25% tariffs on imported vehicles and auto parts, effective from April 3. Trump labeled this date as the "Liberation Day" for the U.S. automotive industry, asserting the primary goal is to stimulate local production and correct historically unfair trade practices.
However, substantial risks emerge from this policy, including potential disruptions to global supply chains, a significant increase in new vehicle prices (ranging from an additional $4,000 to $12,200 per unit), especially affecting electric vehicles highly dependent on imported components, and inflationary pressures that might compel the Federal Reserve to reconsider its current pause on restrictive monetary policy.
Additionally, the auto industry immediately reacted negatively, with shares of giants like General Motors, Ford, and Stellantis declining, while Canada and the European Union strongly opposed the measure, considering potential retaliatory actions that could escalate global trade tensions.
In this scenario, markets closely watch Friday’s release of the PCE inflation report and the University of Michigan's inflation expectations index, indicators that could provide crucial insights into the Federal Reserve's next moves. The Fed remains cautiously on the sidelines, evaluating the real impact of governmental trade policies on inflation and economic growth.
Ultimately, although today the dollar exhibited technical and fundamental weakness, its future outlook continues to hinge significantly on domestic and international political and economic dynamics, promising continued high operational volatility in the near term.
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