Dollar Climbs Amidst Trade And Geopolitical Jitters

(RTTNews) - Trade tariff turbulence and uncertainty about peace in Ukraine lifted the Dollar Index during the week ended February 28. The week witnessed the U.S. Dollar strengthening against the euro, the British pound, the Australian dollar as well as the Japanese yen. The 6-currency Dollar Index which measures the U.S. Dollar's relative strength also recorded weekly gains of close to a percent.

The Dollar Index, a measure of the Dollar's strength against a basket of 6 currencies rallied 0.94 percent during the week ended February 28 amidst persisting tariff warnings from the U.S. The Dollar Index jumped to 107.61, from 106.61 a week earlier. The index ranged between 106.13 recorded on Monday and 107.66 touched on Friday in a week that saw the PCE-based inflation readings from the U.S. moving on expected lines.

Data released on Thursday showed that the U.S. economy expanded at an annualized rate of 2.3 percent in the fourth quarter of 2024 and in line with the advance estimate. The slowest growth in three quarters was much lower than 3.1 percent recorded in the third quarter.

Data released on Friday showed the PCE Price Index on a year-on-year basis declining as expected to 2.5 percent, from 2.6 percent previously. The core component thereof also declined as expected to 2.6 percent, from 2.9 percent in the previous period. The PCE Price Index on a month-on-month basis remained steady at 0.3 percent as expected. The core component thereof increased on expected lines to 0.3 percent, from 0.2 percent in the prior period.

The disappointing outcome of the meeting between Ukraine's President and the U.S. President on Friday dampened sentiment heavily for the euro, resulting in a decline of 0.79 percent against the U.S. Dollar over the course of the week ended February 28. The aggravation in uncertainty about peace in Ukraine dragged down the EUR/USD pair to 1.0375, from 1.0458 a week earlier. The pair traded between a high of 1.0529 recorded on Monday and a low of 1.0360 recorded on Friday.

The GBP/USD pair dropped 0.42 percent during the week ended February 28 even as policy makers at Bank of England disagreed about the future pace of rate cuts. The pair finished trading at 1.2577, on Friday, versus 1.2630 a week earlier. The week's trading ranged between Wednesday's high of 1.2717 and Friday's low of 1.2558.

The Australian Dollar plunged more than 2 percent against the U.S. Dollar during the week ended February 28 amidst an unexpected decline in private capital expenditure as well as anxiety surrounding potential U.S. tariffs on China, a key trading partner. From the level of 0.6355 on February 21, the AUD/USD pair slipped to 0.6207 by February 28, recording a decline of 2.3 percent. The weekly trading range was wider, between 0.6393 on Monday and 0.6192 on Friday.

The USD/JPY pair rallied 0.88 percent to 150.60, from 149.29 a week earlier even as Bank of Japan's Kazuo Ueda reiterated the possibility of intervening in the bond market in exceptional cases of rapid increases in bond yields. The pair ranged between a low of 148.57 recorded on Tuesday and the high of 151.00 touched on Friday.

Currency market moves during the current week are likely to be driven by geopolitical and trade dynamics as well as expectations surrounding key data releases on the horizon.

The looming data releases from the U.S. are the ISM Manufacturing PMI on Monday, the ISM Services PMI on Wednesday, as well as the crucial Non-Farm Payrolls and Unemployment data on Friday. The Federal Reserve Chair Jerome Powell's speech on Friday would also be keenly watched for monetary policy cues. Amidst the renewed risk appetite that followed strong economic data from China, the Dollar Index has fallen to 106.91.

Inflation data released from the Euro Area just a while ago showed flash headline annual inflation at 2.4 percent. Markets had expected it to decline to 2.3 percent from 2.5 percent in the previous month. The hotter-than-expected inflation reading from the Euro Area has strengthened the euro at the onset of the new week. The euro's movements would now largely be dictated by expectations about the ECB's next interest rate decision due on Thursday as well as the prospects of peace in Ukraine. In this backdrop, the EUR/USD pair has increased to 1.0469. The GBP/USD pair has also moved up to 1.2683.

Ahead of the RBA minutes release on Monday, the quarterly GDP update on Tuesday and the trade data update on Wednesday, the AUD/USD pair is hovering near 0.6233.

The USD/JPY pair has also in the meanwhile moved up to 151.11, as markets factor in the manufacturing PMI persisting in contraction territory despite a minor uptick. BoJ Governor Kazuo Ueda's recent comments that U.S. tariff plans and its impact on the global economic outlook warranted a vigilance in setting monetary policy also weighed on sentiment.