US Dollar muted as Nasdaq tumbles ahead of CPI data
- DXY stalls around 103.95 as market sentiment remains fragile.
- Traders eye Wednesday’s US CPI data for fresh market direction.
- Nasdaq slides 3.3%, dragging broader equities lower.
The US Dollar (USD) remains under pressure on Monday, with DXY hovering around 103.95, struggling to find traction after last week's steep decline. Federal Reserve (Fed) Chair Jerome Powell’s latest remarks on Friday reassured markets that the central bank sees no urgent need to adjust policy at the moment, though economic uncertainties are growing. Meanwhile, the Nasdaq is facing heavy market losses, down 3.3%, as investors remain cautious ahead of key United States (US) inflation data due midweek.
Daily digest market movers: Fed in focus as CPI looms
- Market participants are bracing for the release of February’s Consumer Price Index (CPI) on Wednesday, expected to provide key insights into inflation trends.
- The Federal Reserve enters its blackout period ahead of the March 19 meeting, limiting central bank commentary for the week.
- Fed Chair Jerome Powell reiterated on Friday that the Fed remains patient and does not see an urgent need to act, preferring to wait for additional economic data before making any policy changes.
- US equities face a sharp correction, with the Nasdaq leading losses, down 3.3%.
- CME FedWatch Tool indicates a majority expectation for rates to remain at current levels in May, while June rate cut expectations have risen significantly.
- Ahead of the blackout media period, the Fed’s sentiment index on the daily chart has fallen towards neutral ground, which could also explain the USD’s decline.
DXY technical outlook: Testing support near 103.50
The US Dollar Index (DXY) stabilizes below 104.00, consolidating after last week’s steep drop. The 20-day and 100-day Simple Moving Averages (SMA) confirmed a bearish crossover near 107.00, reinforcing the negative trend. The Relative Strength Index (RSI) remains near oversold territory, signaling potential for a short-term rebound. Meanwhile, the Moving Average Convergence Divergence (MACD) remains bearish, suggesting further downside risk unless buyers step in near support levels. If DXY fails to reclaim 104.50, the next support is seen near 103.30, which could determine whether a deeper decline unfolds.
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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