Dollar Extends Rally as Tariff Easing Lifts Sentiment

 Key Takeaways:

*Tariff Truce: U.S. and China agree to slash tariffs for 90 days, easing trade tensions and supporting risk assets.

*Dollar Strengthens: Greenback rallies as investors shift exposure to U.S. assets amid improved sentiment.

*CPI in Focus: Upcoming inflation data could influence Fed policy expectations and dictate the next move for the dollar.

Market Summary:

The U.S. dollar extended gains on renewed optimism after the United States and China reached a temporary trade consensus, agreeing to significantly reduce tariffs for a 90-day period. The U.S. will cut import duties on Chinese goods from 145% to 30%, while China will lower tariffs on U.S. imports from 125% to 10%. In a further sign of easing tensions, Beijing also agreed to lift key export restrictions on rare earth elements and magnets used in high-tech manufacturing, according to U.S. Trade Representative Jamieson Greer. The deal temporarily alleviates fears of a prolonged trade war that had previously clouded the global economic outlook and weighed on investor confidence.

In response, the Dollar Index—which tracks the greenback against a basket of six major currencies—rebounded sharply, supported by improved US economic outlook and renewed capital inflows into U.S. assets. However, analysts warned that the agreement remains short-term in nature, and President Donald Trump’s unpredictable trade stance continues to inject volatility into markets. 

Traders are now turning their attention to the upcoming release of U.S. Consumer Price Index (CPI) data, due later today. Expectations are for both headline and core inflation to remain elevated, with persistent pricing pressures partly attributed to recent tariff-induced supply chain costs. The inflation report is likely to shape short-term dollar momentum and influence Federal Reserve rate expectations.

Technical Analysis:

Dollar_Index, H4 

From a technical standpoint, the Dollar Index is trading higher while testing resistance at 101.90. However, the MACD has shown signs of weakening bullish momentum, and the RSI stands at 71—indicating potential overbought conditions. 

Should the index fail to break above this level, a short-term pullback toward the moving average line could occur. 

Nevertheless, fundamentals remain dollar-positive. A rebound from the MA line or a decisive breakout above 101.90 would likely pave the way for a continuation toward the next resistance level at 103.40.

Resistance Levels: 101.90, 103.40

Support Levels: 100.30, 99.65