US dollar gains as investors seek safety amid trade uncertainty and geopolitical risks.
Markets await CPI data and Powell’s comments for clues on the Fed’s next move.
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The US-China trade tensions spiked again, shaking global markets. US President Donald Trump announced a 100% tariff on Chinese imports starting November 1 and said he would skip the planned meeting with Chinese President Xi Jinping. These moves brought back fears of a full-blown trade war.
China responded by tightening export controls on rare earth metals, raising concerns in Washington about access to key resources. As a result, US stock markets saw one of their biggest single-day drops since April. The S&P 500 lost about $2 trillion in value, and the cryptocurrency market fell by roughly $550 billion.
US President Donald Trump said China was using rare earth elements as a tool of economic pressure. In response, he announced new tariffs and plans to restrict exports of key software products. China’s Ministry of Commerce said it does not want a trade war but is ready for any outcome.
Trump hinted in his weekend posts that talks with China are still possible, but the planned meeting with President Xi in South Korea later this month now looks uncertain. A comment from US Vice President Vance suggesting that a fair negotiation process on tariffs could resume helped calm the markets slightly, though uncertainty remains high.
US Dollar a Safe Harbor in the US-China Crisis
The renewed tension between the US and China marks a critical phase for the index, especially in terms of strategic dependencies. The US remains strong in semiconductors and software, but it relies heavily on China for rare metals.
These metals play a key role in industries such as automotive, defense, renewable energy, and electronics. By 2024, China is expected to produce about 70% of the world’s rare metals and handle 85% of global processing. This dependence explains why the Trump administration views the sector as a national security risk. The Pentagon’s $1 billion purchase of strategic minerals and its stockpiling of lithium and cobalt are seen as early steps to diversify supply sources.
In the markets, reactions were similar to those seen during the tariff shock in April. Investors moved out of riskier assets, while the US dollar, gold, and bonds gained. The difference this time was in the bond market. Instead of selling, investors bought 10-year bonds, showing a shift toward defense rather than fears of a new recession.
The US dollar index (DXY) began the week climbing toward the 99 level, after briefly falling on Friday. The US dollar also gained against the yen amid political uncertainty in Japan, and it held steady against the EUR/USD following a cabinet reshuffle in France.
Eyes on CPI Data and Powell ahead of Fed Decision
The US government shutdown, now lasting nearly 10 days, continues to create uncertainty around key economic data releases. Still, the Bureau of Labor Statistics (BLS) confirmed that it will publish the CPI data on October 24 as required by law. This data will play a key role in the on October 29. Despite the shutdown, the Fed is expected to move forward with its decision based on the CPI figures.
Officials have kept the option of an interest rate cut open, reinforcing expectations of continued monetary easing. However, the new tariffs and higher import costs could complicate this outlook. Rising input prices are likely to appear first in (PPI) and later in (CPI).
The Trump administration insists that the tariffs will have only a limited effect on inflation, but higher import prices and production costs could lift overall price levels over time. If inflation rises faster than expected, the Fed may be forced to delay or adjust its rate plans. This could renew tensions between Trump’s trade strategy and the Fed’s monetary policy.
Global data flow remains light today, but Fed Chair Jerome Powell’s on Tuesday will be closely watched. His comments on how the latest tariffs might affect inflation and growth could guide the next moves in the US dollar index.
US Dollar Technical Outlook
Overall, the US dollar index is being supported by risk-averse investors. However, this strength reflects cautious positioning rather than real confidence in the US dollar. If the Trump administration eases tariffs or resumes talks with Xi Jinping, the US dollar may struggle to hold its recent gains. But if the trade conflict deepens or China tightens export restrictions, the US dollar could rise again, breaking above the 99 level and possibly testing 101.
In short, amid growing trade and geopolitical uncertainty, the US dollar index (DXY) is returning to its traditional role as a safe haven. Technically, 98.5 is seen as short-term support, while 99.70–100 marks intermediate resistance and 101.6 is a strong resistance level. Movements within this range will likely depend on Trump’s statements, developments in US-China relations, and signals from the Federal Reserve.
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