- 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.
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.
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