US Dollar stalls as markets digest PCE and tariff outlook
- DXY trades flat around 104.30 as PCE data offered no fresh impulse.
- February PCE rose 0.4%, keeping inflation fears in play ahead of the April tariff showdown.
- Resistance lies at 104.47, while 103.95 marks short-term support.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of currencies, is currently flat near 104.30 on Friday following the release of the Federal Reserve’s (Fed) preferred inflation metric — the Personal Consumption Expenditures (PCE) Price Index. The reading showed a mild uptick, helping the Greenback hold recent levels. However, the rally appears capped as safe-haven flows favor Gold, and technical signals remain bearish.
Daily digest market movers: US Dollar holds gains after PCE release, tariff jitters
- February’s core PCE rose 0.4%, above the expected 0.3%, reinforcing lingering inflation concerns in the United States.
- The headline PCE printed at 0.3%, matching expectations and offering no major surprises for traders.
- Despite stronger data, the US Dollar Index traded sideways as Gold surged beyond $3,080 to hit new record highs.
- US President Donald Trump’s recent tariff announcements, including a 25% auto levy effective April 2, rattled global trade sentiment.
- European Union officials warned of a “robust and timely” response if tariffs are implemented as planned next week.
- European Central Bank (ECB) Vice President Luis de Guindos said the tariffs will have temporary inflationary effects but lasting damage on Eurozone growth.
- Germany’s Chancellor Olaf Scholz criticized the US strategy, stating that isolationism would ultimately harm all involved economies.
- The DXY remains in a tight consolidation range as markets await clearer directional catalysts post-PCE.
- On Thursday, the US GDP was revised to 2.4% for Q4, slightly above the initial estimate, but had minimal impact on the Greenback.
- Jobless claims data showed improvement, with continuing claims falling to 1.856 million, supporting the labor market narrative.
- The reciprocal tariff deadline of April 2 is drawing near, raising concerns about a possible trade conflict with the EU.
Technical analysis
The US Dollar Index (DXY) continues to trade in consolidation near the 104.30 zone after a mild post-PCE reaction. While the Moving Average Convergence Divergence (MACD) flashes a buy signal, momentum indicators remain mixed. The Awesome Oscillator holds steady, suggesting subdued trend strength. The bearish backdrop is supported by the 20, 100, and 200-day Simple Moving Averages (SMA), as well as the 10- and 30-day Exponential Moving Averages (EMA), all pointing lower. Resistance is located at 104.118, 104.145, and 104.472, while immediate support rests at 103.951.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.