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The U.S. Dollar Index (DXY) has started to recover slightly from the sharp sell-off witnessed last week, following indications from various job-related data that the U.S. labour market is beginning to decline.
During Tuesday’s trading sessions, it touched levels around 103.20 points.
This week, the U.S. Dollar Index is poised for strong moves, relying solely on economic data, as there will be no discussions from Federal Reserve officials.
The Fed’s blackout period has begun ahead of the interest rate decision and Federal Reserve Chairman Jerome Powell’s speech next week.
Tuesday’s, Thursday’s, and Friday’s data are pivotal in determining the main market direction, especially the U.S. Consumer Price Index (CPI), released on Tuesday, which exceeded expectations and showed an increase in inflation. This might be sufficient to postpone expected interest rate cuts already priced into the markets. Thursday’s Producer Price Index (PPI) and Retail Sales figures will be crucial in determining market trends.
Additionally, comments from former President Donald Trump, suggesting that a 10% tariff will bring companies back to the U.S., along with tax cuts for American households, have caused some market turmoil in the medium term.
Geopolitically, Chinese, Iranian, and Russian naval forces are conducting military manoeuvres from March 11 to 15. There is no agreement for a ceasefire over the weekend, meaning Muslims in Gaza enter the fasting month of Ramadan with limited supplies and increased escalation, potentially favouring safe-haven assets.
Despite unclear coalition formation, the unexpected shift to the right in the Portuguese elections may have implications for more European countries approaching contentious elections, potentially leading to increased protectionist measures and higher prices.
In my opinion, the impact of these events was reflected in the Japanese stock markets on Monday, as GDP data showed Japan barely emerging from recession, casting doubt on expectations and hopes for future interest rate hikes. European stocks are nearing a 1% negative close, and U.S. indices are also in decline, with around a 0.50% drop. Expectations for the Federal Reserve to temporarily maintain interest rates at the March 20 meeting stand at 96%, with only a 4% chance of interest rate cuts.
This favours the U.S. Dollar Index, which appears to have just begun a long-term recovery. Meanwhile, 10-year U.S. Treasury yields are trading around 4.05%, the lowest level over a week.
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