- The DXY dollar index jumps above 107.00 after a hotter inflation component than expected in GDP data.
- The CME Fedwatch tool now shows a probability close to 35% that the rates will be stable in June, with cuts still on the table.
- The approach will be transferred to the February market data that will be published in early March.
The dollar (DXY) index, which tracks the performance of the US dollar (USD) compared to six main currencies, is extending its profits on Thursday, exceeding 107.00 while the markets digest the second reading of the Gross Domestic Product (GDP) of the United States and its inflation components. The operators were surprised by the most hot personal consumption spending data (PCE), which reinforces concerns about persistent inflation.
Daily Markets Summary: The US dollar is strengthened after GDP inflation surprises
- The US GDP for the fourth quarter of 2024 stood as expected at 2.3%, confirming constant economic growth.
- The PCE inflation component exceeded expectations by 2.4%, while the underlying PCE shot 2.7%, compared to the 2.5%prognosis.
- Initial applications for unemployment subsidy in the US increased to 224,000 for the week that ended on February 21, pointing out a slight weakness in the labor market.
- Continuous requests in the US decreased to 1,862 million, exceeding the prognosis of 1,870 million.
- In the Foreign Policy Front, the president of the USA, Donald Trump, sowed confusion about the implementation of tariffs, contradicting previous statements.
- The markets react to uncertainty about tariffs while Trump reaffirms the taxes of 25% over Canada and Mexico, which will enter into force on March 4.
DXY technical perspective: Alcistas recover key levels, but the impulse is still fragile
The US dollar index has bounced strongly above 107.00, recovering the single mobile (SMA) average of 100 days in 106.60. The relative force index (RSI) and the convergence/divergence indicator of mobile socks (MACD) indicate an impulse in improvement, but the bullish thrust still needs confirmation. The resistance is located at 107.30, while support levels are observed at 106.60 and 106.00 in case of reversal.
GDP FAQS
The gross domestic product (GDP) of a country measures the growth rate of its economy for a certain period of time, normally a quarter. The most reliable figures are those that compare GDP with the previous quarter (for example, the second quarter of 2023 with the first of 2023) or with the same period of the previous year (for example, the second quarter of 2023 with the second of 2022).
The annualized quarterly figures of GDP extrapolate the growth rate of the quarter as if it were constant for the rest of the year. However, they can be misleading if temporary disturbances affect growth in a quarter but it is unlikely that they last all year, as happened in the first quarter of 2020 with the burst of the coronavirus pandemic, when the growth collapsed.
A higher GDP result is usually positive for the currency of a nation, since it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting greater foreign investment. Similarly, when GDP falls it is usually negative for the currency.
When an economy grows, people tend to spend more, which causes inflation. The Central Bank of the country then has to raise interest rates to combat inflation, with the side effect of attracting more world investor capital tickets, which helps the appreciation of the local currency.
When an economy grows and GDP increases, people tend to spend more, which causes inflation. Then, the country’s central bank has to raise interest rates to combat inflation. Higher interest rates are negative for gold because they increase the opportunity cost to keep gold in the face of placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for the price of gold.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
