US Dollar steadies after in-line PCE data
- January’s Personal Consumption Expenditures data aligned with expectations.
- President Trump confirms that tariffs on Canada, Mexico, and China will take effect on March 4.
- DXY is set to record a 0.60% weekly gain, holding onto Thursday’s rally.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of six major currencies, remains firm above 107.00 on Friday after January’s Personal Consumption Expenditures (PCE) inflation data came in line with forecasts, easing concerns over unexpected inflation spikes.
The Greenback retains its recent gains as President Donald Trump reaffirms that tariffs on Canada, Mexico, and China will be implemented on March 4. Meanwhile, risk sentiment improves with US equity markets erasing earlier losses and moving higher.
Daily digest market movers: US Dollar holds firm after PCE report
- DXY hovers around 107.30, aiming to sustain its bullish momentum heading into the weekend.
- Trump administration confirms that tariffs on Canada and Mexico will take effect on March 4, with China facing an additional 10% levy.
- January’s PCE inflation data met expectations with monthly headline PCE at 0.3%, unchanged from the prior reading.
- Core PCE at 0.3%, ticking up from December’s 0.2%, while the annual headline PCE at 2.6%, slightly exceeding expectations but in line with December’s 2.6%. Core PCE arrived at 2.6%, easing from a revised 2.9% in December.
- In addition, the Chicago Purchasing Managers Index (PMI) jumps to 45.5, surpassing the 40.6 consensus and improving from January’s 39.5.
- Regarding expectations, the CME FedWatch Tool indicates a 30% probability that the Federal Reserve will keep rates unchanged at 4.25%-4.50% in June, with the rest pointing to potential cuts.
- On the foreign policy front, tensions rise between US President Donald Trump and Ukrainian leader Volodymyr Zelenskyy over peace deal negotiations.Zelenskyy pushed for US promises on defense, while Trump accused him of being “disrespectful” in a heated public exchange.
DXY technical outlook: Holding steady with weekly gains
The US Dollar Index remains above 107.00, consolidating its 0.60% weekly gain after rebounding above the 100-day Simple Moving Average (SMA) at 106.60. Technical indicators, including the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), signal mild recovery, but further bullish momentum is needed. Resistance is seen at 107.50, while support lies at 106.60 and 106.00, acting as key levels if selling pressure emerges.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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