- Markets are chasing safe havens such as Gold to fresh all-time highs.
- Traders see US PCE release adding to equity sell off.
- The US Dollar Index trades flat around 104.30, though no safe-haven flow in the Greenback.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is currently flat near 104.30 at the time of writing on Friday. Traders are not really looking at the Greenback but rather at an exodus from Equities and Cryptocurrencies into the precious metals’ market, where Gold has hit another all-time high this Friday at $3,086. The reciprocal tariff deadline is approaching fast, April 2, and clearly has struck a nerve amongst traders and market participants.
On the economic data front, all eyes were on the Federal Reserve (Fed) preferred inflation gauge, the US Personal Consumption Expenditures (PCE) data for February. Nog big beats or surprises. Later this Friday Fed Vice Chairman Michael Barr and Atlanta Fed President Raphael Bostic are still due to speak.
Daily digest market movers: PCE was no surprise
- The US Personal Consumption Expenditures data for February has been released:
- The monthly headline PCE came in at 0.3% as expected, unchanged from the previous 0.3%. The yearly gauge remained stable at 2.5%.
- The monthly core PCE grew by 0.4%, beating the 0.3% expected. The yearly core PCE ticked up to 2.8% from 2.6%.
- At the same time, the US Personal Income month-on-month for February jumped to 0.8%, a big beat of the 0.4% expected and from 0.9% previously. The US Personal Spending for February fell to 0.4%, below the expected 0.5%, coming from the previous contraction of 0.2%.
- At 14:00 GMT, the University of Michigan Consumer Sentiment Index reading for March is expected to remain stable at 57.9. The 5-year Consumer Inflation Expectations are set to remain unchanged at 3.9%.
- At 16:15 GMT, Federal Reserve Bank Vice Chair for Supervision Michael Barr will speak on Banking Policy at the 2025 Banking Institute in Charlotte, N.C.
- At 19:30 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic will moderate a policy panel at the third annual Georgia Tech-Atlanta Fed Household Finance Conference at the Atlanta Fed, Atlanta, Georgia.
- Equities are diving lower with losses between 0.5% to 2% crossing from Asia over Europe and into US futures.
- According to the CME Fedwatch Tool, the probability of interest rates remaining at the current range of 4.25%-4.50% in May’s meeting is 87.1%. For June’s meeting, the odds for borrowing costs being lower stand at 65.5%.
- The US 10-year yield trades around 4.31%, looking for direction with some small safe haven inflow.
US Dollar Index Technical Analysis: PCE held no real surprises
The US Dollar Index (DXY) has been roughly consolidating since that seismic drop at the start of March. Slowly but surely, some small unwinding of that big move lower is starting to unfold. Look for a synchronized move, with Gold paring back gains and the rate differential between the US and other countries widening again, for a comeback of the DXY to 105.00/106.00.
With the weekly close above 104.00 last week, a return to the 105.00 round level could still occur in the coming days, with the 200-day Simple Moving Average (SMA) converging at that point and reinforcing this area as a strong resistance at 104.95. Once broken through that zone, a string of pivotal levels, such as 105.53 and 105.89, could limit the upward momentum.
On the downside, the 104.00 round level is the first nearby support after a successful bounce on Tuesday. If that level does not hold, the DXY risks falling back into that March range between 104.00 and 103.00. Once the lower end at 103.00 gives way, watch out for 101.90 on the downside.
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.
