The US Dollar rebounded as global equities plunged and trade tensions, fueled by President Trump's tariff stance and concerns raised by Bill Ackman, rattled markets. Investors are now focused on upcoming US CPI data for inflation clues. Rising expectations for Federal Reserve rate cuts and a rebound in Treasury yields added to the complex market picture.
The US Dollar (USD) staged a recovery on Monday, April 7th finding renewed strength as global equity markets experienced a significant downturn and investors grappled with escalating trade tensions. The US Dollar Index (DXY), a key measure of the dollar’s performance against a basket of six major currencies, rebounded to trade near the 103.00 level after an initial dip.
The market’s risk-off sentiment was palpable, with major equity indices plunging by 3% to 5% across the board. This flight to safety appeared to benefit the Greenback, often seen as a safe-haven asset during times of economic uncertainty. 
Adding to the market jitters were comments from US President Donald Trump regarding his commitment to existing tariffs. Furthermore, prominent financier Bill Ackman publicly voiced concerns that these trade policies were eroding the confidence of business leaders. These developments have amplified anxieties surrounding potential disruptions to global trade and economic growth.
Looking ahead, market participants are keenly awaiting the release of the US Consumer Price Index (CPI) data later this week. This inflation gauge will be closely scrutinized as it could offer early insights into the potential impact of the current administration’s policies on price levels. The White House has previously asserted that President Trump’s measures have already led to lower prices for essential goods.
On the economic calendar, the US Treasury was scheduled to launch auctions for 3-month and 6-month bills on Monday afternoon. These auctions are routinely monitored for signals regarding investor demand for US debt.
Meanwhile, expectations for Federal Reserve (Fed) interest rate cuts have seen a notable increase. The CME FedWatch tool indicated a rising probability of a rate cut in May, jumping to 46.2% from 33.3% on Friday. For the June meeting, the market is now predominantly pricing in rate cuts, with a 53.5% chance of the policy rate being reduced to the 3.75%-4.00% range.
The US 10-year Treasury yield experienced a rebound, climbing back above 4.1% after hitting a five-month low. This upward movement suggests some easing of the intense bearish pressure seen in the previous week. However, investors remain attentive to the trajectory of yields as they reflect broader economic sentiment and inflation expectations.
From a technical analysis perspective, the DXY index encountered a firm rejection at the 103.18 level, which had previously acted as support throughout March. This level now appears to be a key area of resistance. Above this, the 104.00 round number and the 200-day Simple Moving Average (SMA) at 104.87 could present further hurdles for dollar bulls.
On the downside, the 101.90 level is seen as the initial support, having held firm in recent trading sessions. A break below this could pave the way for a move towards the 100.00 mark.
The strengthening US Dollar has had a noticeable impact on other major currency pairs:
The coming days will be crucial for the US Dollar as investors digest the upcoming CPI data and closely monitor any further developments in the ongoing trade discussions. The interplay between inflation figures, trade policy, and evolving expectations for Federal Reserve action will likely continue to shape the trajectory of the Greenback in the near term.