US dollar rises market digests inflation and unemployment data

On the Asian session on Friday, the US dollar index fluctuated below 104, and next Wednesday, the Federal Reserve will hold a monetary policy meeting. The U.S. producer price index (PPI) in February remained flat on a month-on-month basis for the first time in seven months, and the number of unemployment claims decreased at the beginning of last week, suggesting that the economy is stable and should allow the Federal Reserve to keep interest rates unchanged next Wednesday. However, the calm depicted by the U.S. Labor Department report released on Thursday could be subverted by a sharp government spending cut. These actions have left thousands of federal employees and contractors unemployed, and a trade war caused by widespread import tariffs is escalating.

Analysis of major currency trends

U.S. dollar: As of press time, the US dollar index hovered around 103.86, and the market is facing a key turning window: on the one hand, the avatradescn.combination of cooling inflation and strong employment tests the flexibility of the Fed's policy framework; on the other hand, geopolitical risks and cross-market flows of funds continue to disturb short-term pricing technology, the daily level of the US dollar index has formed a bullish pherophy pattern, but the 200-day moving average (105.02) and the year's high of 105.89 constitute a strong resistance band. If the weekly line can stand firm above 104.50, it may start sprinting towards the 105.50 area. "But the agency also warns that the momentum indicator shows signs of top divergence. If the U.S. Treasury yield falls unexpectedly, it may trigger a rapid correction to the 103.00 area.

Euro: As of press time, the euro/dollar hovers around 1.0850, and the euro/dollar further gave up its recent gains on Thursday, falling about a third of 25% as Europe prepares for long-term round-trip negotiations with U.S. President Donald Trump on trade tariffs. On Friday, U.S. data will end a relatively tight week, which includes the University of Michigan (UoM) consumer confidence index and the University of Michigan consumer inflation expectations. Technically, the euro/dollar looks close The bull market for the period has ended, confirming a technical retracement below 1.0900, just as it initially quickly broke through this important threshold. However, the EUR/USD rebounded nearly 7.6% from its recent major low of 1.0175, with the bulls easily breaking the 200-day index moving average (EMA). The EUR/USD is now facing technical resistance from the 1.0900 mark, a technical area that confuses Euro bulls in October and November last year.

GBP: As of press time, GBP/USD hovered around 1.2952, GBP/USD fluctuated on the chart for the second consecutive day, firmly staying below the 1.3000 mark as pound traders took a breather and paid wide attention to market headlines. Inflation at the U.S. Producer Price Index (PPI) business-level inflation eased faster than expected in February. However, the market did not have any chance to get any joy from the lighter inflation data as US President Donald Trump continued to push the movement that triggered a global trade war. Despite the constant geopolitical headlines, the pound market remains relatively unaffected by tariff negotiations, and the UK has been barely noticed in the process. UK GDP (G DP) growth data is expected to be released in early Friday market sessions. However, as the data is traced back to January, the monthly data is unlikely to trigger too much volatility as any changes in the UK growth pattern may have been digested by the market. Technically, the GBP/USD pair is experiencing a second straight week of upside, close to a new 18-week high of 1.2950. The important 1.3000 resistance level may limit any additional gains as this key level was a significant point of integration in October and November 2024. Currently, buyer demand is strong, but technical indicators have been in the overbought zone since January, suggesting that a potential reversal may occur soon.

Summary of news from the foreign exchange market

1. The UK provides 2 billion pounds of loans to allies to promote the development of defense enterprises

The UK announced that it will provide a total of 2 billion pounds (2.6 billion US dollars) to the allied governments to purchase products from British defence avatradescn.companies. This is the increase in European countries under pressure from President TrumpThe latest initiative to increase military capacity investment. The UK Treasury said the direct loan capacity of British export finance avatradescn.companies will be increased from £8 billion to £10 billion, with additional funds going to British defence avatradescn.companies that export missiles, aircraft and armored vehicles. The statement said that the improvement will be the core pillar of the government's upcoming defense industry strategy.

2. Japanese trade unions will publish wage agreement statistics

Japan's largest trade union federation will publish first wage agreement statistics, which is a key indicator to measure whether Japan's wage growth momentum continues. Workers’ wages remain an important part of the virtuous economic cycle sought by the Bank of Japan and the government. The Japan Federation of Trade Unions (Rengo) will release preliminary statistics on the wage agreement later on Friday to give people an idea to what extent businesses can respond to union strong demands. Workers' wage increases were required to reach 6% last week, the highest level since 1993. This news is expected to be announced as early as 4:15 pm (local time).

3. The European Spirits Industry Association called on Europe and the United States not to use the industry as a "negotiation chip"

The European Spirits Industry Association called on the 13th to stop using the industry as a "negotiation chip" in the tariff war. On the 12th, the EU announced countermeasures against the US 25% steel and aluminum tariffs, including imposing tariffs on US-made whiskey, and the relevant measures will take effect in April. US President Trump said on social media on the 13th that if the EU does not cancel tariffs on whiskey products that the United States will impose, the US will soon impose 200% tariffs on alcoholic products from EU countries. According to media reports, the European Spirits Industry Association said in a statement on the 13th that the industry is "deeply shocked" by the US tariff threat, "This cycle of 'tit for tooth' tariff retaliation must be stopped immediately! We urge both sides not to use the spirits industry as a bargaining chip for disputes that are not related to us."

4. The U.S. Senate Banking avatradescn.committee votes to pass a bill aimed at regulating stablecoin issuers

According to CoinDesk, the U.S. Senate Banking avatradescn.committee has advanced the crypto industry stablecoin regulation bill, which is an important first step in sending the bill to US President Trump to sign into law. With the first avatradescn.committee approval, the bill that will regulate U.S. stablecoin issuers at the federal level, now needs to be passed by the Senate as a whole, and the House has a similar version awaiting approval. While there are still many obstacles to overcome, including the eventual merger of different bills from both houses, the bill has passed the avatradescn.committee's deliberations by a 18-6 vote.

5. The number of initial applicants in the United States has dropped slightly, still close to the pre-epidemic level

Last week, the number of initial applicants in the United States has almost no change, roughly consistent with the pre-epidemic level. In the week ended March 8, the number of initial unemployment claims fell by 2,000 to 220,000. As of the week ended March 1, the number of people who renewed unemployment benefits fell to 1.87 million, which was also lower than expected. So far, facing TrumpThe labor market remains resilient due to the escalating trade war and the federal government's shrinking uncertainty.

Institutional View

1. Royal Bank of England: The Bank of England may "stay in control" in March and maintain a gradual rate cut.

Analysts at Royal Bank of Canada said in a report that the Bank of England is expected to maintain interest rates at 4.50% in its March 20 resolution. According to LSEG data, the market expects the Bank of England to keep interest rates unchanged in March at 94%. Analysts say the Bank of England may maintain a gradual pace of rate cuts in the avatradescn.coming months, with three more rates cuts in 2025.

2. CAITU Macro: Moderate PPI data contains signs of sticky consumer inflation

CITU Macro analyst Thomas Ryan wrote that the February PPI data was on the surface benign, but some details indicate that consumer prices were sticky. He pointed out that the results of hospital PPI index and air ticket prices were worse than expected. He now expects the annual rate of the core PCE index to be announced later this month to accelerate from 2.7% to 2.8%, a little far from the Fed's 2% target. Ryan said the three-month annualized interest rate “will jump sharply from 2.4% to 3.4%. He expects the pressure from tariffs to eventually pass on to consumers.

3. Barclays: The Fed is expected to cut interest rates twice this year

In view of recent developments, Barclays currently expects the Fed to cut interest rates twice this year—one in June and another in September. This is in line with the latest shift in market expectations since last month. Nevertheless, their forecasts are still somewhat lower than current federal funds futures. Traders expect the Fed to cut interest rates by about 70 basis points this year, with the expected rate cut earlier this week as high as about 84 basis points.

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