The dollar index climbed above 104.3 on Wednesday, reaching its highest level in three weeks, as investors sought safety amid weak economic data and ongoing uncertainty over US trade policy.
DXY climbs to three-week high
The greenback’s strength was fueled by disappointing economic indicators, reinforcing concerns about slowing growth while keeping traders cautious ahead of key policy developments.
The latest data showed that new orders for non-defense capital goods excluding aircraft, a closely watched proxy for business investment, unexpectedly declined after three consecutive months of gains. This suggested that companies may be pulling back on spending amid uncertainty surrounding interest rates and trade policy. Meanwhile, consumer confidence plunged to its lowest level in over four years on Tuesday, reflecting growing unease among households over inflation, labor market conditions, and the broader economic outlook. The downbeat sentiment added to worries that consumer spending, a major driver of US growth, could weaken in the coming months.
Eyes on tariff news
Adding to market caution, investors are awaiting further details on potential new US tariffs, with President Trump expected to announce measures targeting autos, semiconductors, and pharmaceuticals next week. While the administration has emphasized the need for reciprocal trade policies, fears of escalating global trade tensions have led traders to position defensively, further boosting the dollar as a safe-haven asset.
Federal Reserve remains in focus
Additionally, the Federal Reserve remains in focus, with investors looking ahead to Friday’s release of the PCE price index, the Fed’s preferred inflation gauge. A hotter-than-expected reading could reinforce expectations that the central bank may keep interest rates elevated for longer, further supporting the dollar. However, if inflation shows clear signs of easing, markets may reassess the timing of potential rate cuts. Bond yields edged higher amid the uncertainty, reflecting market jitters over the Fed’s next steps and the broader economic trajectory.
