US Dollar surges after strong GDP and inflation data
- 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.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.