Since January 19, the US dollar has been subject to frenzied selling. The trigger was former President Trump's aggressive remarks about acquiring Greenland and his threats to impose tariffs on eight European countries. At the Davos Forum, a speech by Canadian Prime Minister Carney sparked considerations of European "strategic autonomy," leading to a consensus among European financial institutions to sell off US dollars, US Treasury bonds, and US stocks.
On January 24, the International Monetary Fund (IMF) released data showing that the US dollar's share of global foreign exchange reserves fell to 56.92%, dropping below 60% and hitting a new multi-decade low.
Prior to January 19, although former President Trump had taken actions such as the seizure of Venezuelan President Maduro and intervention in conflicts between Iran and Israel, the US Dollar Index (DXY) remained stable during that period without experiencing large-scale selling. It was only after the Greenland issue intensified that the DXY began to decline significantly, while gold and silver prices surged wildly during the same period. Based on this, it is judged that European financial institutions are the driving force behind the recent movements in gold and the US dollar.
Whether the US dollar depreciation caused by international relations and geopolitical issues is sustainable depends on the performance of US economic data. The chart above is an overlay of US Non-Farm Payrolls and the core CPI annual rate. Both data curves show a downward trend, but the rate of decline is continually narrowing. Since mid-2024, both curves have exhibited a sideways movement pattern, indicating that the US macroeconomy has entered a period of stability. Issues related to Venezuela, Greenland, and Iran have not had a substantive impact on US economic data. We tend to believe that the decline in the DXY is a short-to-medium-term phenomenon, showing signs of being oversold, and may see a recovery in the future.
Expectations for Federal Reserve interest rate cuts continue to form a persistent bearish factor for the DXY. This week, the Fed will announce the results of its first policy decision of the year, with institutions expecting it to maintain the upper limit of the interest rate at 3.75%. Although no rate cut is expected, this does not necessarily mean the US dollar will receive a boost, as market participants still anticipate ongoing rate cuts by the Fed within the year. Therefore, even if the DXY can rebound due to being oversold, achieving a sustained trend of upward movement remains challenging.
In terms of market performance, the DXY is trading within a wide sideways range, currently in a downward move from the upper boundary towards the lower boundary. From July 2025 to the present, the DXY has formed a wide consolidation range on the daily chart, with an upper boundary of 100.23 and a lower boundary of 96.34. For over half a year now, no price swing has broken beyond these boundaries. Although the decline since January 19 has been rapid, the lowest point reached was 96.77, which remains above the lower boundary of 96.34. The current downward swing has already intersected with the lower channel line shown in the chart, suggesting a potential for a bottoming-out and rebound. If this decline ultimately fails to break below the 96.34 support level, the DXY could potentially initiate an internal upward move from the lower boundary towards the upper boundary within its range.
Comments