DXY Holds Firm as Markets Digest Inflation & Tariff Updates

The global financial markets are experiencing significant movements driven by key economic data releases and geopolitical developments. The US Dollar Index (DXY) remains strong, buoyed by January’s PCE inflation data and ongoing trade tensions. Meanwhile, major currency pairs, including EUR/USD, GBP/USD, and AUD/USD, are responding to shifting investor sentiment and Federal Reserve expectations. Additionally, commodities such as gold and oil are seeing price fluctuations amid economic uncertainty and geopolitical risks. This market update provides an overview of the latest trends shaping forex and commodity markets.

US Dollar Index (DXY)

US Dollar holds ground after PCE data, geopolitical jitters

The US Dollar Index (DXY) remains strong above 107.00, bolstered by January’s Personal Consumption Expenditures (PCE) inflation data, which met expectations and eased concerns over unexpected inflation spikes. The Greenback continues to hold its gains as President Trump reaffirms the implementation of tariffs on Canada, Mexico, and China, set for March 4. Risk sentiment improves with US equity markets reversing earlier losses and moving higher. The DXY is hovering around 107.30, aiming to sustain its bullish momentum. The PCE report showed monthly headline inflation at 0.3%, with core PCE rising to 0.3% from December’s 0.2%. Annual headline PCE remained at 2.6%, in line with forecasts, while core PCE eased to 2.6%, down from December’s 2.9%. The Chicago PMI also surpassed expectations, further supporting the Greenback. Expectations for the Federal Reserve indicate a 30% probability of no rate changes in June, with the remainder anticipating rate cuts. On the geopolitical front, tensions between Trump and Ukrainian President Zelenskyy over defense commitments have added to market uncertainty. Technically, the DXY remains above 107.00, consolidating a 0.60% weekly gain, with key support at 106.60 and 106.00, while resistance is seen at 107.50.

EUR/USD

EUR/USD Price Forecast: Sticks to gains above 1.0400; could climb further amid weaker USD

EUR/USD has paused its three-day losing streak, trading around 1.0410 during the Asian hours on Monday, driven by a weaker US Dollar following the release of January’s Personal Consumption Expenditures (PCE) inflation data, which met forecasts and eased concerns about unexpected inflation spikes in the US. The PCE report showed monthly headline inflation steady at 0.3%, with core PCE rising slightly to 0.3% from December’s 0.2%. Annual headline PCE stood at 2.6%, slightly above projections but unchanged from December, while core PCE eased to 2.6% from a revised 2.9%. The US Dollar Index (DXY) weakened after three consecutive sessions of gains, hovering around 107.30, although the downside of the Greenback could be limited due to rising US Treasury yields. However, escalating US-China trade tensions may boost safe-haven demand for the US Dollar, potentially limiting EUR/USD’s gains. US President Trump’s announcement of additional tariffs on Chinese, Canadian, and Mexican imports adds to market uncertainty. The Euro has gained strength against its peers, supported by stronger-than-expected February Harmonized Index of Consumer Prices (HICP) data from Germany. Despite this, the European Central Bank (ECB) is expected to continue easing monetary policy, and investors are awaiting further Eurozone HICP data later in the day.

GBP/USD

GBP/USD retakes 1.2600 amid modest USD weakness; upside potential seems limited

The GBP/USD pair attracted some dip-buyers during the Asian session on Monday, halting its retracement slide from levels above the 1.2700 mark, a two-month peak reached last week. The intraday upward move lifted the pair back above the 1.2600 round figure, supported by modest US Dollar weakness. Growing pessimism about the US economic outlook, along with expectations for further policy easing by the Federal Reserve (Fed), failed to help the US Dollar capitalize on its three-day recovery from a two-month low. The US Dollar Index (DXY) started the week weaker, reversing much of Friday's gains, which had pushed it to a one-week high. Meanwhile, the British Pound (GBP) continues to outperform, driven by expectations of less aggressive policy easing by the Bank of England (BoE). However, concerns over US President Donald Trump's reciprocal tariffs and their potential impact on the UK economy could limit the GBP bulls from making fresh bets. Additionally, geopolitical risks might prevent deeper USD losses, capping further gains for GBP/USD. Signs that the US disinflation process has stalled and that the Fed may adopt a wait-and-see approach to future rate cuts could act as a tailwind for the US Dollar, potentially limiting the GBP/USD pair's upside. Traders are now looking ahead to key US macro data, including the ISM Manufacturing PMI, with the focus on Friday's Nonfarm Payrolls (NFP), which will influence expectations about the Fed's rate-cut trajectory and, in turn, drive near-term USD demand.

AUD/USD

Australian Dollar remains steady as US Dollar holds losses ahead of ISM Manufacturing PMI

The Australian Dollar (AUD) halted its six-day losing streak on Monday, supported by a weaker US Dollar (USD) after the release of January’s Personal Consumption Expenditures (PCE) inflation data, which aligned with expectations and eased concerns over unexpected inflation spikes in the US. Australia's TD-MI Inflation Gauge fell by 0.2% month-over-month in February, marking its first decline since August, following the Reserve Bank of Australia's (RBA) 25 basis point rate cut to 4.1%. Despite the drop, the gauge showed a 2.2% annual increase, slightly below the previous 2.3% rise. The AUD also found support from upbeat Chinese economic data, with China’s Caixin Manufacturing Purchasing Managers' Index (PMI) rising to 50.8 in February, surpassing expectations and boosting the AUD, given China’s significance as a key trading partner for Australia. However, the AUD’s upside could be limited by escalating US-China trade tensions, as President Donald Trump announced additional tariffs on Chinese imports, further complicating trade relations. The US Dollar Index (DXY) weakened after three consecutive sessions of gains, hovering around 107.30, but the Greenback's downside may be limited by rising US Treasury yields. Meanwhile, geopolitical tensions between the US and Ukraine, coupled with Trump’s memorandum restricting Chinese investments in strategic sectors, added to global uncertainties. Despite these concerns, the S&P Global Australia Manufacturing PMI showed improvement, and China’s NBS Manufacturing PMI rose to 50.2, adding support for the AUD. As for technical analysis, the AUD/USD pair is under pressure, trading below key moving averages and testing support at 0.6200. A break below this level could push the pair toward 0.6087, while resistance at the nine- and 14-day EMAs lies at 0.6280 and 0.6290, respectively.

USD/JPY

Japanese Yen remains on the front foot against USD amid hawkish BoJ expectations

The Japanese Yen (JPY) regained positive traction after hitting a one-week low against the US Dollar (USD) during the Asian session on Monday, driven by expectations of more interest rate hikes by the Bank of Japan (BoJ). Investors are increasingly pricing in the possibility of further rate hikes, pushing the yield on Japan’s benchmark 10-year government bond to its highest level since November 2009. Despite some US Dollar selling, the USD/JPY pair failed to sustain its early gains toward the 151.00 mark. Additionally, BoJ Governor Kazuo Ueda’s warning about the uncertainty surrounding US President Donald Trump's tariff plans and their potential impact on the global economy has limited the JPY bulls, preventing them from placing fresh bets and offering some support to the USD/JPY pair. Traders are also awaiting significant US macroeconomic data, including the ISM Manufacturing PMI, which is set to be released later in the North American session. The Japanese Yen remains underpinned by solid economic growth and persistent inflation in Japan, which has bolstered expectations that the BoJ will continue to raise interest rates. However, Japanese media reported that the BoJ might face pressure from the US if it is concluded that the Yen’s weakness is tied to the central bank’s monetary policy. In addition, Japan’s au Jibun Bank Manufacturing PMI for February was finalized at 49.0, indicating the softest contraction in three months. On the US side, the Dollar struggled to maintain its strength following the release of January’s PCE inflation data, which showed a slight decrease to 2.5%, while core PCE inflation eased to 2.6% from 2.9% in December. These developments have fueled speculation that the Federal Reserve may resume cutting interest rates in June, further exerting pressure on the USD/JPY pair. As traders look ahead to the release of the US ISM Manufacturing PMI later on Monday and the US Nonfarm Payrolls report on Friday, market focus remains on potential implications for future Federal Reserve policy decisions.

Gold (XAU/USD)

Gold price trades with mild positive bias; lacks bullish conviction

Gold prices edged higher to $2,870 during the early Asian session on Monday, supported by ongoing global uncertainties and tensions, particularly the ongoing Russia-Ukraine conflict. The precious metal is benefiting from safe-haven demand as traders react to geopolitical instability, with developments like a fire at an oil refinery in Russia’s Ufa region and rising tensions between the US and Ukraine. Over the weekend, US President Donald Trump criticized Ukrainian President Zelenskyy, leading to the cancellation of a minerals deal that would have brought Ukraine closer to resolving its conflict with Russia. These geopolitical concerns could further drive up the demand for gold as a safe-haven asset. On the economic front, US PCE inflation for January came in line with expectations, with the headline PCE price index rising 2.5% YoY and the core PCE increasing 2.6%, down from 2.9% in December. These inflation figures suggest the Federal Reserve might adopt a cautious stance on further rate cuts, which could limit gold's upside potential. Additionally, renewed demand for the US Dollar could cap further gains for the yellow metal. Investors are also awaiting the release of the US February ISM Manufacturing PMI later on Monday for further market direction.

West Texas Intermediate (WTI)

WTI holds gains above $70.00 due to rising concerns over Russia-Ukraine peace deal

West Texas Intermediate WTI Oil prices recovered their recent losses, trading around $70.10 per barrel during the Asian session on Monday, driven by escalating tensions between US President Donald Trump and Ukrainian leader Volodymyr Zelenskyy. These tensions arose during peace deal negotiations, where Zelenskyy was expected to sign an agreement granting the US greater access to Ukraine's rare earth minerals. However, the plan was abandoned after a heated exchange between the leaders, with Trump expressing his disdain publicly, leading to Zelenskyy being asked to leave the White House. While these geopolitical tensions supported oil prices, concerns over weaker global demand, exacerbated by rising US-China trade tensions, could cap further gains. Over the weekend, Trump announced an additional 10% tariff on Chinese imports, adding to the previous tariff, and stated that 25% tariffs on Canadian and Mexican goods would take effect on March 4. Meanwhile, Turkish Energy Minister Alparslan Bayraktar confirmed that Turkey aims for full capacity on the Iraq-Turkey Oil pipeline once operations resume through Ceyhan. However, a report from Reuters highlighted that eight international oil companies in Iraq's Kurdistan region stated they would not restart oil exports through Ceyhan, despite Baghdad's announcement that the resumption was imminent.

As markets navigate economic data releases, central bank policies, and geopolitical uncertainties, currency pairs and commodities continue to fluctuate. The US Dollar maintains resilience amid inflation concerns and trade policy shifts, while the Euro, Pound, and Australian Dollar seek upward momentum. Gold and oil prices remain sensitive to global risk factors, with investors closely monitoring upcoming economic indicators, including the ISM Manufacturing PMI and Nonfarm Payrolls report, for further market direction.

The weekly market update is published every Monday. If missed due to unforeseen circumstances, it will be posted the following day.

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