US Dollar Index (DXY) remains depressed below 99.00 as recession fears return
- Weak US data and the ongoing tariff uncertainty are weighing on the USD.
- US services activity contracted in May for the first time in almost a year.
- The lack of advances in trade negotiations is adding pressure on the Dollar.
The US Dollar Index (DXY) is trading practically flat on Thursday, consolidating losses after a bearish reversal on Wednesday, as downbeat Services and employment data, coupled with the ongoing tariffs uncertainty, revived fears of an upcoming recession.
The US Institute of Supply Management’s Services PMI reading revealed that business activity in the sector contracted for the first time in nearly a year. The index dipped to 49.9 in May from 51.6 in April against an improvement to the 52.0 level forecasted by the market.
Weak US data and trade concerns keep the USD on the defensive
These figures follow another negative surprise in the Manufacturing sector, and a sharper-than-expected decline in Factory orders, all in all figures that hints to a weak US economic growth in the second quarter.
Somewhat earlier, the US ADP Employment report posted a poor 37K increase on May’s private payrolls against expectations of a 115K increase. These figures cast doubt on Friday’s Nonfarm Payrolls report and have heightened fears of a significant slowdown in employment creation.
Beyond that, US President Trump complained that reaching a deal with Chinese President Xi is “extremely hard”, which brought the lack of progress on the trade negotiations back to the forefront, dampening sentiment further and adding pressure to a battered US Dollar.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.