Key Points:
- USDX closed at 103.92 after hitting a high of 104.006.
- Investors await February PCE inflation data for rate path clues.
The US dollar index (USDX) hovered near 104.3 on Friday, with price action stabilising after a volatile Thursday session that saw the dollar weaken on tariff concerns and economic uncertainty. At the close, the index settled at 103.92, slightly lower from an earlier high of 104.006, as traders braced for the release of the Personal Consumption Expenditures (PCE) price index—a key inflation gauge used by the Federal Reserve.
The Fed’s inflation forecast upgrade earlier this month has shifted the rate cut narrative, especially as tariff risks resurface. On Thursday, Richmond Fed President Tom Barkin said the central bank’s current stance is “moderately restrictive” and justified given ongoing policy and geopolitical volatility.
Tariff Risks Still in Focus
The broader dollar sentiment remains fragile, as markets continue to digest President Trump’s upcoming reciprocal and auto tariffs, scheduled to take effect next week. These levies are expected to trigger retaliatory measures from key trade partners, which could hurt consumer spending, inflation expectations, and business investment.
The dollar held steady against the euro and yen, but gained modestly versus commodity-linked currencies like the Australian dollar and New Zealand dollar, both of which remain under pressure from domestic rate cut expectations and softer growth outlooks.
Technical Analysis
The USDX chart on the 15-minute timeframe shows a consolidation phase after a brief push to 104.29, which was sharply rejected. Price has since been oscillating between 104.00 and 103.70, reflecting indecision in the market. The recent candles are tight and choppy, confirming low volatility and a lack of clear direction.
Picture: USDX coils in tight range; breakout brewing between 103.70 and 104.00, as seen on the VT Markets app
The MACD remains flat near the zero line, with no strong divergence or momentum—signaling a neutral bias. The moving averages (5, 10, 30) are overlapping, reinforcing the range-bound nature of current price action. A decisive break above 104.00 or below 103.70 is needed to confirm the next directional move.
PCE Holds the Key
Markets now await the February PCE report, which could cement the path for near-term Fed policy. A hotter reading may reinforce a hawkish Fed bias, potentially lifting the dollar back toward 104.30 and beyond. A softer outcome could lead to renewed speculation around a June or July rate cut, with downside risk toward 103.60.
Traders are likely to stay on the sidelines until the data drops, with short-term price action favouring tight ranges and breakout watching.
