Dollar Index Rises Amid Economic Signals and Tariff Announcements

The dollar index (DXY00) increased by +0.68% today, reaching a one-week high. This rise in the dollar comes on the heels of strong signs from the US economy, particularly as Q4 GDP remained unrevised at +2.3% (quarterly annualized). Additionally, January capital goods new orders, excluding defense and aircraft parts—a key indicator of capital spending—rose by +0.8% month-over-month, surpassing expectations of +0.3%.

Dramatic dollar gains also followed President Trump’s announcement that proposed 25% tariffs on Canada and Mexico would go into effect on March 4, with China facing an additional 10% tariff on the same date. However, the dollar faced bearish pressure from a significant rise in weekly jobless claims, which leapt to a two-and-a-half-month high, and weaker-than-expected pending home sales for January, which dropped by -4.6% month-over-month.

Economic Indicators Influence Dollar Movements

The Q4 core PCE price index was revised upward to +2.7% from the initially reported +2.5%. Meanwhile, January capital goods orders indicate a strong trend in capital expenditures, as the data reflects greater growth than projected. It is essential to note that initial unemployment claims rose by +22,000 to 242,000, which was significantly above the anticipated 221,000, marking a potential warning sign for the labor market.

Moreover, January pending home sales showcased their largest decline in nine months, intensifying concerns about the housing market’s resilience.

Fed Comments and Future Economic Outlook

Kansas City Fed President Esther Schmid commented that the Federal Reserve may need to carefully balance inflation risks against growth uncertainties, stating, “While the risks to inflation appear to be to the upside, conversations with contacts in my district, along with some recent data, suggest that elevated uncertainty might weigh on growth.”

This week’s economic calendar remains eventful, as Friday will bring the January PCE price index report—an important inflation gauge favored by the Fed. Analysts anticipate it to ease slightly to +2.5% year-over-year from December’s +2.6%, with the core index predicted to drop to +2.6% year-over-year from +2.8%. These data points are expected to remain above the Fed’s +2% inflation target.

Currently, markets assign just a 2% chance of a -25 basis point rate cut at the upcoming FOMC meeting scheduled for March 18-19.

Foreign Exchange Markets React

The EUR/USD (^EURUSD) pair fell by -0.57%, hitting a one-week low. Higher dollar strength, driven by tariffs, weighed down the euro. On a more positive note, Eurozone economic data showed February economic confidence rose more than expected to a five-month high, with a reading of 96.3 versus the forecast of 95.9. However, January M3 money supply figures struck a less optimistic tone, rising only +3.6% year-over-year compared to expectations of +3.8%.

The markets anticipate a nearly certain -25 basis point rate cut from the European Central Bank at its policy meeting on March 6, a move that may reflect efforts to bolster economic stability.

Precious Metals Under Pressure

Today, the USD/JPY (^USDJPY) saw an uptick of +0.49% as the yen weakened amid dollar strength invigorated by tariff announcements. Additionally, rising Treasury note yields are putting further downward pressure on the yen. Today’s trading shows April gold (GCJ25) down -$46.50 (-1.59%) while March silver (SIH25) decreased by -$0.497 (-1.54%). These losses in precious metals are largely connected to the dollar’s ascent.

Despite the downturn in prices, precious metals could find support from safe-haven demand intensified by geopolitical tensions. Notably, gold ETF holdings increased, reflecting a rise in long positions to a 13-and-a-half-month high.

On the date of publication,
Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.