25.02.202615:24 Forex Analysis & Reviews: USD: near-term and long-term prospects

*) see also: InstaForex trading indicators for USDX

The US dollar is holding previously gained ground, trading in the USDX index around 97.85–97.90 at the start of the US session.

Investors have again turned cautious, driven by the US Supreme Court's decision on trade restrictions imposed by the administration of former President Donald Trump and by a new round of tariffs announced over the past weekend.

The US Supreme Court ruled that import tariffs imposed by former President Donald Trump were unlawful. In response to the ruling, the ex-president voiced his displeasure on Truth Social with a series of emotional posts. The main thrust of his remarks is that any attempt by other countries to seek compensation or to overturn existing tariffs will be met with strong pushback from Washington.

According to Trump, the administration is prepared to take measures to expand restrictions into areas not previously affected by trade disputes. This includes possible new sanctions, tighter licensing of goods and services, and a broader range of regulatory instruments. A universal 15% tax will come into force shortly, while tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA) will cease to apply.

This development creates an intermediate stage in US trade policy. Although the initial legal basis for taxation is changing, the overall strategy of protecting the domestic market and domestic manufacturers remains unchanged. This means the country will continue to pursue an economic-protectionism policy adapted to new conditions in international trade.

The court's decision effectively opens a new chapter in the history of US trade relations with partners, laying the ground for further escalation of tensions. It is important to note that the administration's position is a preventive measure aimed at averting further lawsuits and potential negative consequences for American companies and industry. Accordingly, further intensification of the international trade conflict is expected, accompanied by tighter control over export-import operations and more complex legal interaction mechanisms between parties.

An additional factor supporting the dollar was speeches by Federal Reserve officials, who reaffirmed their commitment to a tight monetary policy. Several members of the Fed's committee, including Chicago Fed head Austan Goolsbee, said that a decline in inflation should be the primary condition before any easing of monetary policy.

Macroeconomic data: on the positive side

After a series of losses, the US currency finally showed a recovery, fueled by new economic indicators. The average weekly ADP change in nonfarm payrolls increased to 12.8k, indicating a gradual recovery in the US labor market.

Equity markets remain stable on the back of positive economic data. The domestic economic situation also looks stable, as confirmed by fresh statistics. According to the latest reports, American consumer spending continues to rise, showing firm momentum: the annual increase in the PCE index was 3.0%, above the market expectation of 2.9%. The reported monthly inflation rate also exceeded forecasts, rising from 0.2% to 0.4%.

At the same time, the labor market is showing positive dynamics: initial jobless claims fell much more than expected, from 229k to 206k in the past week. These figures point to an improvement in employment conditions and confirm the resilience of the US economy in the face of global risks.

Support for US assets and the dollar is also provided by improving consumer sentiment. The Conference Board consumer confidence index rose significantly in February to 91.2, materially above the revised January reading of 89.0 (from 84.5).

Moreover, the US dollar is strengthening and approaching an important resistance around 98.00 in USDX, attracting buyer interest.

These factors support prospects for continued moderate economic growth and firmer US financial assets even amid rising geopolitical risks and volatile commodity prices.

Fed and market expectations

Despite investor optimism about the economic outlook, market attention remains focused on forthcoming Federal Reserve decisions. Chair Jerome Powell retains a cautious stance, favoring the maintenance of current monetary settings. However, strategy may change soon, because Powell's term ends in the spring, opening the way for new leadership that could lean toward easier policy. Some experts believe the incoming Fed chair could change the policy trajectory, favoring less stringent measures to support the economy.

For now, the Fed's plan to pause in March remains intact according to the CME FedWatch Tool, with the probability today at about 98%.

At the same time investors still expect Fed rate cuts this year, although the exact timing remains uncertain. Analysts envisage three successive 25 bp reductions starting in July or September of this year. The first stage could bring the policy rate into the 3.50–3.85% range.

Technical picture

The coming weeks will be decisive: holding the zone 97.54 (EMA200 on the 1-hour chart) – 97.85 (EMA50 on the daily chart) will preserve the chance of further gains; a break of 97.30 (weekly lows) – 97.00 could trigger deeper declines with the probability of a move into the global bear zone, currently limited by key support at 96.85 (EMA200 on the monthly chart) and local support levels at 96.20 (September 2025 lows) and 96.00.

In a bullish scenario (on strong inflation data or hawkish Fed rhetoric), USDX would return above 99.05 (EMA200 on the daily chart) and 99.40 (EMA50 on the weekly chart) and restore the uptrend. The first signal for this scenario would be a break of today's high at 97.97 and the February high at 98.05, with immediate targets near resistance around 98.55 (EMA144 on the daily chart).

Conclusion

Thus, the US economy continues to show signs of stability and resilience despite persistent external risks and internal political changes, and USDX futures are attempting to develop upward dynamics within a short-term bull zone — above support levels 97.54 and 97.68 (EMA200 on the 4-hour chart).

Nevertheless, investors are advised to monitor developments closely, remain flexible, and be ready to respond quickly to potential changes.