US Dollar rebounds after PPI and jobless claims data
- DXY climbs after better-than-expected jobless claims data.
- PPI figures come in softer, raising concerns about weakening demand.
- Markets await updates on US diplomatic talks in Russia over Ukraine ceasefire.
- Trump threatens 200% tariffs on European wines and champagnes.
The US Dollar (USD) bounced back on Thursday, reclaiming the 104.00 level as traders reacted to softer-than-expected Producer Price Index (PPI) data and positive jobless claims figures. The US Dollar Index (DXY) initially jumped following the data release but later pared gains as investors weighed the implications of slowing inflation and potential demand concerns. Meanwhile, United States (US) diplomats arrived in Russia for ceasefire talks over Ukraine, and President Donald Trump escalated trade tensions by threatening a 200% tariff on European wines and champagnes.
Daily digest market movers: Mixed economic signals, geopolitical tensions rise
- The US weekly jobless claims report showed initial claims at 220,000, lower than the expected 225,000. Continuing claims dropped to 1.87 million, below the forecast of 1.90 million.
- The February Producer Price Index (PPI) came in weaker than expected, with the headline monthly figure at 0.0% vs. 0.3% expected, and the core PPI contracting by 0.1%.
- On a yearly basis, the headline PPI eased to 3.2%, below the projected 3.3%, while the core PPI declined to 3.4% from 3.6%.
- Markets initially viewed the softer inflation data as positive for the US dollar, but gains were quickly reversed as traders interpreted weaker PPI figures as a sign of softening demand.
- US stocks moved lower after PPI data, with sentiment further pressured by Trump's latest trade threats targeting European imports.
- The CME FedWatch tool indicates that markets widely expect the Fed to maintain rates in the March 19 meeting, while rate cut probabilities for May and June continue to rise.
DXY technical outlook: Oversold bounce meets resistance
The US dollar index (DXY) recovered from recent multi-month lows, climbing back above 104.00 as traders reassessed oversold conditions. Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicate a short-term correction, though selling pressure remains dominant after last week’s sharp decline. Key resistance stands near 104.50, while support rests at 103.50, with further downside possible if sellers regain control.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.