Market Data 
- The US Dollar flat on Friday after the US PCE reading for January.
- No surprises in the PCE numbers which were in line of expectations.
- The US Dollar Index (DXY) consolidates Thursday’s gains above 107.00.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, looks happy to close off this week around 107.30, which is the level at the time of writing on Friday. The DXY tries to keep a hold on that level. Markets got shaken up again overnight as United States (US) President Donald Trump confirmed that tariffs for Canada and Mexico are going into effect on March 4. Meanwhile, China will face an additional 10% levy on the same day.
On the economic data front, all eyes on Friday were on the Personal Consumption Expenditures (PCE) data for January. In the second reading of the US Gross Domestic Product (GBP) for the fourth quarter of 2024 on Thursday, the PCE components for both the headline and the core reading were revised up. Though the January numbers were in line of expectations and did not trigger or see any outside moves.
Daily digest market movers: Meeting coming up
- Ukraine President Volodymyr Zelenskyy is heading to Washington D.C. to sign a rare-earth deal with US President Donald Trump this Friday.
- The Personal Consumption Expenditures Price Index for January was nearly fully in line of expectations:
- The monthly headline PCE came in at 0.3%, unchanged from the previous reading.
- The monthly core PCE ticked up to 0.3% from 0.2% in December.
- The headline PCE rose to 2.6%, beating the 2.5% year-over-year compared to 2.6% in December, while the core PCE is expected rose to 2.6% in January compared to 2.8% in the previous month.
- At 14:45 GMT, the Chicago Purchase Managers Index for February is due. The expectation is still for a contraction at 40.6, coming from 39.5 in January.
- Equities are seeing US equities starting to tick higher just ahead of the US opening bell.
- The CME Fedwatch Tool projects a 29.7% chance that interest rates will remain at the current range of 4.25%-4.50% in June, with the rest showing a possible rate cut.
- The US 10-year yield trades around 4.25%, further down from last week’s high at 4.574%.
US Dollar Index Technical Analysis: Off the lows
Finally, the US Dollar Index (DXY) might have had a nice uptick. Holding current ground will be key, with the biggest challenge coming from US yields still trending lower, narrowing the rate differential between the US and other countries. Another leg lower is possible should inflation concerns swirl back and push US yields higher again, supporting a stronger US Dollar.
On the upside, the 55-day Simple Moving Average (SMA) is the first resistance to watch for any rejections, currently at 107.97. In case the DXY can break above the 108.00 round level, 108.50 is coming back in scope.
On the downside, as already mentioned, 107.00 needs to hold as support. Nearby, 106.80 (100-day SMA) and 106.52, as a pivotal level, should act as support and avoid any returns to the lower 106-region.
US Dollar Index: Daily Chart
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
