- US Dollar Index DXY jumps above 107.00 after a hotter-than-expected inflation component in GDP data.
- CME FedWatch Tool now shows a near 35% probability that rates will remain steady in June, with cuts still on the table.
- Focus will shift to labor market data from February to be released at the beginning of March.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is extending gains on Thursday, breaking above 107.00 as markets digest the second reading of United States (US) Gross Domestic Product (GDP) and its inflation components. Traders were caught off guard by hotter-than-expected Personal Consumption Expenditures (PCE) data, reinforcing concerns over persistent inflation.
Daily digest market movers: US Dollar rallies after GDP inflation surprises
- US GDP for Q4 2024 came in as expected at 2.3%, confirming steady economic growth.
- PCE inflation component exceeded expectations at 2.4%, while core PCE surged to 2.7%, compared to the 2.5% forecast.
- US Initial Jobless Claims rose to 224,000 for the week ending February 21, signaling slight labor market weakness.
- US Continuing Claims declined to 1.862 million, beating the 1.870 million forecast.
- On the foreign policy front, US President Donald Trump sowed confusion over tariff implementation, contradicting earlier statements.
- Markets react to tariff uncertainty as Trump doubles down on 25% levies on Canada and Mexico, which will come into effect on March 4.
DXY technical outlook: Bulls reclaim key levels but momentum remains fragile
The US Dollar Index has rebounded strongly above 107.00, reclaiming the 100-day Simple Moving Average (SMA) at 106.60. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicate improving momentum, but the bullish push still needs confirmation. Resistance lies at 107.30, while support levels are seen at 106.60 and 106.00 in case of a reversal.
Interest rates FAQs
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.
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.
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.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
Gold sits at record highs above $3,100 amid tariff woes
Gold price holds its record-setting rally toward $3,150 in European trading on Monday. The bullion continues to capitalize on safe-haven flows amid intesifying global tariff war fears. US economic concerns weigh on the US Dollar and Treasury yields, aiding the Gold price upsurge.
EUR/USD holds steady below 1.0850 ahead of German inflation data
EUR/USD is holding steady below 1.0850 in early Europe on Monday. The pair draws some support from a broadly weaker US Dollar but buyers stay cautious ahead of Germany's prelim inflation data and Trump's reciprocal tariff announcement.
GBP/USD posts small gains near 1.2950 amid tariff woes
GBP/USD keeps the green near 1.2950 in the European morning on Monday. Concerns that US President Donald Trump's tariffs will ignite inflation and dampen economic growth weigh on the US Dollar and act as a tailwind for the pair.
Seven Fundamentals for the Week: “Liberation Day” tariffs and Nonfarm Payrolls to rock markets Premium
United States President Donald Trump is set to announce tariffs in the middle of the week; but reports, rumors, and counter-measures will likely dominate the headline. It is also a busy week on the economic data front, with a full buildup to the Nonfarm Payrolls (NFP) data for March.
US: Trump's 'Liberation day' – What to expect?
Trump has so far enacted tariff changes that have lifted the trade-weighted average tariff rate on all US imports by around 5.5-6.0%-points. While re-rerouting of trade will decrease the effectiveness of tariffs over time, the current level is already close to the highest since the second world war.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.