The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against a basket of six major currencies, extended its recovery and was trading around 104.00 at the time of writing on Friday (3/21). The DXY is trying to move away from a 2025 low of 103.20 hit on Tuesday, after the Financial Times reported that European countries are drawing up plans to take over responsibility for the continent's defense from the United States (US), including an offer to the Trump administration for a managed transfer over the next five to 10 years, which would reshape the North Atlantic Treaty Organization (NATO). The European bloc wants to avoid a disorganized US exit from the agreement.

Meanwhile, pressure is mounting with the April 2 deadline for the US to impose reciprocal tariffs. Some traders and analysts are trying to understand the impact that the tariffs could have on the market, although for now, this remains unclear. US Federal Reserve (Fed) Chairman Jerome Powell said in a press conference after the latest Fed meeting on Wednesday that the levy should have a temporary effect on inflation.

The market seemed to take his word for it, however, traders remain skeptical. The last time Powell said the effect was temporary, the Fed had to raise its policy rate from 0.25% to 5.5% in the post-covid era when inflation looked sticky, not transitory. It took the central bank more than a year to confirm that.(Newsmaker23)

Source: FXstreet