US Dollar holds ground after PCE data, geopolitical jitters

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.

Patricio Martín FXStreet

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.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Patricio Martín

FXStreet

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

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