The US Dollar Index (DXY) earlier today hit a three-week high of about 104.70. It has since then corrected back down to around 104.30 and change. This drop occurs even as market participants voice worries about the negative effects of higher tariffs on US GDP growth. The 14-day Relative Strength Index (RSI), which measures momentum, has cooled down to approximately 60.00 after previously turning overbought above the 70.00 level.
Pound rallies against US dollar currency pair rebounds after short-lived correction. That’s quite a retreat over the past five full trading days from a four-month top of just under 1.3000. The Cable’s impressive comeback. This increase all occurring in spite of President Donald Trump’s $50 billion, 25% tariff on all imported automobiles and their parts.
Tariff Concerns Weigh on the US Dollar
Market analysts fear that increased levies will be the straw to break the camel’s back in stalling US economic growth. President Trump’s tariffs will be hitting US importers on several fronts. If so, they are almost certain to pass those increased costs along to consumers. Cumulatively these measures would reduce consumer spending, the most important driver of economic activity.
Neel Kashkari, one of the key architects of that economic recovery, recently described it like this, saying that,
“Policy uncertainty is complicating the Fed’s job.”
This assertion serves as a reminder of the challenging reality that the Federal Reserve finds itself navigating, weighing economic expansion against fears of inflation.
The Role of the PCE Price Index
Produced by the US Bureau of Economic Analysis, the Core Personal Consumption Expenditures (PCE) Price Index is released monthly. This index can be thought of as tracking changes in the prices of the goods and services that U.S. consumers buy. As the Federal Reserve’s favorite measure of inflation, the PCE Price Index is extremely important when it comes to monetary policy decisions.
The PCE Price Index data have been released at the same time as the month-to-month changes in Personal Spending and Personal Income. Most notably, it is an important indicator of consumer spending and is considered a leading economic indicator for inflationary trends. All market participants now look forward to Friday’s data release. In doing so, they will likely hope to reassert some degree of clarity over the foggy inflation outlook.
US Dollar Index as a Key Indicator
The US Dollar Index (DXY) measures the value of the Greenback against a basket of six other major currencies. It functions as a popular barometer of the dollar’s value. Recent moves in the DXY have acted as a barometer of market faith and hope towards US economic policy.
The RSI recently made a bearish correction, though it has continued on its bullish upward path after establishing support above 60.00. This further suggests that there is underlying strength yet to be found in the US Dollar. Persistent worries over tariffs and a slowing economy have kept a lid on investor sentiment.