Dollar Cracks Below 50-Day Moving Average As Trump's Tariff Trade Unwinds: 'Buy The Rumor, Sell The Fact'

The U.S. dollar is losing its grip on a months-long rally, breaking below key technical levels and recording its worst week in years, as traders unwind bullish bets in response to President Donald Trump‘s softer-than-expected tariff stance.

The greenback kicked off the week with a 1.2% drop on Trump’s inauguration day. This marked its worst session since November 2023. Early executive orders failed to deliver on his campaign promises of aggressive tariffs on key trading partners.

While Trump suggested a 25% tariff on Mexico and Canada could still be implemented on Feb. 1, markets viewed the delay as a possible retreat from his hardline trade rhetoric

By Friday afternoon, the dollar had lost 1.8% for the week, marking its worst five-day stretch since July 2023.

The U.S. Dollar Index, which tracks the greenback against a basket of major currencies and is closely followed by the Invesco DB USD Index Bullish Fund ETF UUP, slipped below its 50-day moving average, breaching a key technical support for the first time since September.

“"The USD index edged lower as investors continued squaring long USD positions in confirmation of the ‘buy the rumour, sell the fact' behaviour that usually drives market price action," BBVA market strategist Alejandro Cuadrado said Friday.

Chart: Dollar Breaks Below Key 50DMA Support, More Weakness Ahead?

Trump’s Davos Speech Reignited Dollar Bears

Trump's appearance at the World Economic Forum in Davos on Thursday only added to the dollar’s volatility. He adopted a defiant stance against the Federal Reserve by demanding rate cuts.

“I’ll demand that interest rates drop immediately and likewise they should be dropping all over the world," he said.

Markets have already been on edge regarding potential political interference in Fed policy. Trump’s comments intensified fears of a White House willing to pressure the central bank into easing financial conditions prematurely.

Trump unveiled at a softer approach toward China on trade. Speaking about the long-standing and wide U.S. trade deficit with Beijing, he struck a more conciliatory tone: "We have to make it just fair. We don't have to make it phenomenal. I like President Xi very much. I've always liked him. We always had a very good relationship."

He also suggested that China could play a role in ending the Russia-Ukraine war, saying: "Hopefully, China can help us stop the war with, in particular, Russia, Ukraine, and they have a great deal of power over that situation. And we'll work with them."

By the end of the week, reports by Bloomberg suggested Trump preferred not to impose tariffs on China at all, which further fueled the dollar's decline.

Douglas Porter, CFA, chief economist at BMO Economics, reacted: "Trump's comment that he would ‘rather not' impose tariffs on China may be a tell."

Gold Nears Record Highs, Yen Surges On BOJ Move

As the dollar retreated, safe-haven assets like gold marched near record levels.

Investors sought refuge in the metal, which is often inversely correlated to the dollar. The SPDR Gold Trust GLD rallied 2.6% on the week, recording its best score in two months.

The Japanese yen also staged some weekly gains against the greenback backed by a hawkish move by the Bank of Japan.

On Friday, the Bank of Japan raised its key policy rate by 25 basis points to 0.5%, the highest since 2008, marking a shift away from years of ultra-loose monetary policy.

Francesco Pesole, forex analyst at ING, described the move as a game-changer: "The Bank of Japan delivered a well-telegraphed 25bp hike, but surprised markets on the hawkish side by materially raising its inflation forecasts."

“Trump is underdelivering on protectionism compared to pre-inauguration remarks, and that ultimately some of those tariff threats may not materialise as long as some concessions are made on trade,” he added.

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