• The US Dollar holds steady on Friday ahead of the US PCE reading for January. 
• Traders expect a stronger PCE after the uptick in PCE under the quarterly GDP release on Thursday. 
• The US Dollar Index (DXY) tries to consolidate gains above 107.00.

The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, trades around 107.40 at the time of writing on Friday and 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 are 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. This tweaks traders’ anticipation at the last minute to possibly see a surprise uptick in the Federal Reserve’s (Fed) preferred inflation gauge. 
 

Daily digest market movers: Inflation and tariffs

• Ukraine President Volodymyr Zelenskyy is heading to Washington D.C. to sign a rare-earth deal with US President Donald Trump this Friday. 
• At 13:30 GMT, the Personal Consumption Expenditures Price Index for January is due:
  • The monthly headline PCE is expected to come in at 0.3%, unchanged from the previous reading.
  • The monthly core PCE reading is expected to tick up to 0.3% from 0.2% in December. 
  • The headline PCE is expected to rise 2.5% year-over-year compared to 2.6% in December, while the core PCE is expected to rise 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 very split this Friday, with heavy losses in Asian trading, while Europe sees mild losses, and US futures are ready for a positive tone just hours before 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: 107.00 holds

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. 

(Click on image to enlarge)

US Dollar Index: Daily Chart

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