US Dollar Index holds below the 104.00 mark, investors await fresh catalysts

The US Dollar Index (DXY), a measure of the value of the US Dollar (USD) against a weighted basket of currencies used by US trade partners, drops below the 104.00 mark during the early European trading hours on Friday. DXY trades on a softer note as traders await fresh catalysts on when the Federal Reserve (Fed) will begin cutting interest rates. At press time, DXY is trading at 103.92, losing 0.02% on the day. 

Early Friday, Fed Governor Christopher Waller said the recent stronger-than-expected inflation data validates the Fed’s Chair Jerome Powell's careful risk management approach, and the central bank is not rushing to begin cutting interest rates, as the Fed wanted to wait longer before having enough confidence that starting rate cuts will keep us on the path to 2% inflation.

The upbeat Manufacturing PMI and labor data failed to boost the US Dollar Index. The US Department of Labor revealed on Thursday that US Initial Jobless Claims for the week ending February 17 dropped to 201K from the previous week of 213K, while Continuing Claims declined to 1.862M, below the estimation and the previous week.  

Furthermore, the flash US Manufacturing Purchasing Managers Index (PMI) rose to a 17-month high of 51.5 in February from 50.7 in January, above the market consensus of 50.5. Meanwhile, the Services PMI eased to 51.3 in February versus 52.5 prior, weaker than the projection of 52.00.

Apart from this, the rising tensions in the Middle East also support the DXY. Houthi rebels launched two missiles at another UK-registered cargo ship in the Gulf of Arden. This comes as the group enhances its military and defense capabilities to continue attacking ships in the Red Sea. Further conflicts in the Middle East might lift the traditional currency, like the Greenback. 

Next week, market players will focus on the US Gross Domestic Product Annualized for the fourth quarter (Q4), which is projected to remain steady at 3.3%. Also, the Core Personal Consumption Expenditures Price Index (Core PCE) and ISM Manufacturing PMI for February will be due. Traders will take cues from the data and find opportunities around the US Dollar Index.