HG MARKETS:

The US Dollar Index (DXY), which measures the greenback’s performance against a basket of six major currencies, holds onto modest gains after reaching a two-week high near 107.50 early Friday. Investors are closely monitoring the preliminary February Consumer Price Index (CPI) data from Germany; the January Personal Consumption Expenditures (PCE) Price Index from the United States considered the Federal Reserve’s (Fed) preferred inflation gauge and Canada’s fourth-quarter Gross Domestic Product (GDP) data.

The USD strengthened on Thursday as safe-haven demand increased following comments from former US President Donald Trump. He announced that the planned 25% tariff package on Mexican and Canadian imports would take effect on March 4 earlier than the previously mentioned April 2. Additionally, an extra 10% tariff on Chinese imports will be implemented on the same date. These developments weighed on risk sentiment, leading to sharp losses in US equity markets and driving demand for the dollar.

During the Asian trading session, data from Japan revealed that the Tokyo CPI rose 2.9% year-over-year in February, moderating from January’s 3.4% increase. Meanwhile, Bank of Japan (BoJ) Deputy Governor Shinichi Uchida noted that the economy remained in a moderate recovery, though some weaknesses persisted. USD/JPY, which gained nearly 0.5% on Thursday, continues to trade slightly higher near the 150.00 level in early European trading.

EUR/USD came under significant selling pressure on Thursday, declining approximately 0.8%. The pair remains weak early Friday, trading below 1.0400, despite German data showing a modest 0.2% increase in retail sales for January, following a 1.6% contraction in December. Similarly, GBP/USD lost more than 0.5% on Thursday and extended its losses early Friday, falling below 1.2600.

Gold (XAU/USD) continued its downward correction on Thursday, shedding roughly 1.3%, and remains under bearish pressure, trading at a three-week low near $2,860. The Australian dollar also struggled, with AUD/USD falling over 1% on Thursday, marking its fifth consecutive daily decline. The pair continues to slide on Friday, reaching its lowest level since early February at approximately 0.6200.

On the macroeconomic front, US GDP data released yesterday confirmed that the economy expanded by 2.3% in Q4, in line with expectations. However, inflationary pressures were stronger than anticipated. Meanwhile, initial jobless claims rose to their highest level since last October, with a notable increase in Washington’s claims. The rise in jobless claims, partly attributed to layoffs at companies like Elon Musk’s ventures, could potentially influence the Fed’s policy outlook.

Market participants now turn their attention to the upcoming release of the core PCE Price Index for January. If inflation shows signs of easing, it could lead to a partial rebound in US equity markets, potentially tempering expectations of further Fed rate hikes.