US Dollar holds steady after softer CPI data, markets weigh implications
- DXY remains muted as inflation slows faster than expected.
- China and the EU vow retaliation over US tariffs.
- Ukraine-Russia ceasefire deal under discussion.
- US Dollar Index stabilizes in the mid-103.00 area.
The US Dollar steadies on Wednesday, with DXY hovering around 103.50 as traders digest the latest Consumer Price Index (CPI) data. The February inflation report showed both headline and core figures cooling faster than anticipated, reinforcing expectations of softer price pressures ahead of recently imposed United States (US) tariffs. US President Donald Trump was also on the wires, and markets are assessing his words.
Daily digest market movers: Inflation cools, trade tensions rise
- The latest CPI report showed inflation decelerating in February, with both monthly and yearly figures coming in below expectations.
- Monthly headline inflation registered at 0.2%, down from 0.5% in January, while core inflation eased to 0.2%, softer than the expected 0.3%.
- On a yearly basis, headline inflation slipped to 2.8% from 3.0%, while core inflation fell to 3.1% from 3.3%.
- On the global trade front, China reaffirmed plans to retaliate against recent US tariffs, adding to trade concerns.
- EU Commission President Ursula von der Leyen confirmed that the bloc is preparing to impose countermeasures on April 13.
- Diplomatic efforts to end the Ukraine-Russia conflict gained traction, with a potential ceasefire deal brokered by the US now awaiting Russia’s response.
- During a press event with Ireland’s Prime Minister, US President Donald Trump reiterated his grievances over European trade policies, highlighting his intention to impose tariffs on imported cars.
DXY technical outlook: Key support levels in focus
The US Dollar Index (DXY) remains under pressure, holding just above multi-month lows near 103.50. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest oversold conditions, prompting traders to pause aggressive selling. Despite the recent slump, a break below 103.30 could open the door for further losses, while a rebound above 104.00 may trigger short-term recovery attempts.
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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