US Dollar Forecast: DXY Holds Firm as PCE and Tariff Risks Cloud Outlook

Dollar Holds Ground as Traders Brace for PCE Inflation Data

The U.S. Dollar Index (DXY) is inching higher on Friday, even as Treasury yields pull back. Position-squaring ahead of the February Personal Consumption Expenditures (PCE) report appears to be supporting the dollar, with markets staying cautious given mixed inflation signals and ongoing policy uncertainty.

At 11:18 GMT, the U.S. Dollar Index is trading 104.482, up 0.203 or +0.19%.

Technical Resistance Limits Upside for Now

The DXY is currently trading within a retracement zone between 105.167 and 103.984. A move above the 200-day moving average at 104.923 is required to trigger meaningful upside momentum.

If buyers can clear 105.167, the next upside target is the 50-day moving average at 106.179. On the downside, a break below 103.984 would expose the March low at 103.197.

While price action remains rangebound, technical traders are watching these levels closely for confirmation of the next directional move. Until then, positioning appears limited by broader macro uncertainty.

Yields Slip as Tariff Concerns Grow

U.S. Treasury yields are slipping, with the 10-year yield down 4 basis points to 4.334% and the 2-year at 3.99%. Markets are weighing the inflation implications of new 25% import tariffs announced by former President Trump, particularly on automobiles not made in the U.S. Further threats of higher tariffs on Canada and the EU have added to policy risk.

Although weekly jobless claims remained steady, and income and spending data are expected to show monthly gains of 0.4% and 0.7% respectively, the broader concern is how tariffs may keep inflation elevated. Fed officials remain divided, with Boston Fed’s Susan Collins warning of a short-term inflation spike, while others, like St. Louis Fed’s Alberto Musalem, see longer-lasting price pressures.

PCE in Focus as Core Inflation Pressures Persist

Economists expect the core PCE rate to edge up to 2.7% year-over-year, with a monthly rise of 0.4%. This contrasts with the softer CPI print earlier in the month, complicating the Fed’s inflation outlook. With consumer sentiment at a 12-year low and inflation expectations rising, the data may not ease pressure on policymakers.

Today’s PCE figures, based on February data, do not reflect the latest tariff impact—leaving a gap in visibility that could skew market interpretations.

Market Outlook: Dollar Bias Neutral to Firm

The DXY remains technically rangebound, but the broader bias leans firm as long as inflation risks persist and rate cut expectations remain muted.

A hotter-than-expected core PCE could delay Fed easing and support further dollar strength above 105.167. Conversely, a cooler print may invite dovish bets, weakening the dollar and exposing it to technical breakdown below 103.984.

Traders should remain attentive to yield curve moves and inflation-sensitive assets like gold for confirmation.

More Information in our Economic Calendar.