The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against a basket of six major currencies, faced a significant shift in its trading regime this week. The index was trading near 104.00 at the time of writing on Thursday (06/03). Several banks and traders reported that large clients were repatriating their offshore US Dollar-denominated investments back into their domestic currencies. This may mean that those volumes will not return anytime soon, the FT reported.

The repatriation comes after weak US economic data that has left markets worried about the potential impact of Trump's tariffs on domestic inflation and has brought back fears of a strong recession this week. Clearly, US President Donald Trump's approach is starting to have some negative effects.

Meanwhile, the focus will now shift to Europe where a high-stakes European meeting is set to take place this Thursday. EU leaders will discuss a defence spending bill after Trump asserted that the US would no longer play an active role in NATO. US support for Ukraine has also been withdrawn. The European Central Bank (ECB) will release its monetary policy statement and interest rate decision on Thursday. (Newsmaker23)

Source: FXstreet