Weak data remains underperforming but still rises against the trend, establishing a strong US dollar momentum

Huitong Finance APP News — Guide to Today’s Highlights

Market Review

Data Releases

Fundamental Analysis

Federal Reserve Expectations

Media Opinions

Technical Observation

Market Outlook

Market Review

On Friday (March 12), during U.S. trading hours, the US Dollar Index continued its strength, breaking through the 100 level intraday and closing at around 100.32, up approximately 0.58% for the day. This not only marked a nearly four-month high but also confirmed a two-week consecutive rally. Major currency pairs like EUR/USD and USD/JPY faced significant pressure, with the euro falling to multi-month lows and the yen hitting a 20-month low. Overall market sentiment leaned towards risk aversion, boosting the appeal of the dollar as a traditional safe-haven currency.

Data Releases

Today’s key data showed mixed results but did not prevent the dollar from rising. Q4 GDP quarter-over-quarter annualized growth was actually 0.7%, well below the 1.4% market expectation, indicating a slowdown in economic momentum; core PCE inflation rose in line with expectations at 0.4% monthly and 3.1% annually; January trade deficit narrowed to $54.5 billion, with clear signs of export recovery; initial jobless claims remained low, and housing starts exceeded expectations. Overall, these results were neutral to slightly weak, initially causing brief market pressure, but then quickly turning around, with the dollar strengthening against the trend. Investors interpreted this as evidence of economic resilience, with geopolitical factors ultimately dominating the response.

Fundamental Analysis

The core drivers of the dollar’s fundamentals are geopolitical risks and energy market dynamics. The ongoing escalation of conflicts in the Middle East, especially tensions between the U.S. and Iran and potential threats to the Strait of Hormuz, have pushed oil prices higher. The U.S., as a net energy exporter, benefits from this independence, enhancing the dollar’s relative attractiveness. Additionally, rising oil prices directly boost global inflation expectations, constraining monetary easing in other economies. Secondary factors include stable U.S. employment, improved trade data, and overall economic resilience, which support the dollar but are less influential than the geopolitical themes.

Federal Reserve Expectations

Expectations for Fed policy have cooled significantly. The market is now only pricing in a 25 basis point rate cut in 2026, likely pushed back to after September. Next week’s Fed meeting is expected to keep the target rate in the 3.5%-3.75% range. Morgan Stanley analysts explicitly stated, “The Fed will likely hold steady next week,” citing oil price disruptions causing uncertainty in inflation outlooks. The interest rate differential continues to widen, making dollar arbitrage trades more attractive. Recent reports from multiple institutions show investors have lowered expectations for rate cuts, reflecting confidence in the persistence of high interest rates.

Media Opinions

Mainstream media generally emphasize the return of the dollar’s safe-haven role. Reuters noted, “The dollar gains strength amid war concerns, with EUR and JPY falling to multi-month lows”; FXStreet analysis states, “Rising oil prices reinforce the dollar’s status as a safe-haven currency, prompting a reassessment of Fed policy”; Bloomberg and CNBC reports agree that the dollar’s rebound is driven by risk aversion. A JPMorgan survey shows a significant increase in long dollar positions. Analyst Juan Perez added, “In a chaotic world, the dollar always performs well.”

Technical Observation

(Dollar Index 4-hour chart Source: EasyForex)

On the technical side, the Dollar Index remains above 100, with a clear bullish structure on the 4-hour chart. Short-term resistance is at the 100.50-101.00 zone; a break above could open further upside potential. Support is at 99.80-99.70; a pullback here could be viewed as a buying opportunity. The RSI indicator is in overbought territory but not showing divergence, and the MACD has a confirmed bullish crossover, indicating overall bullish momentum.

Market Outlook

In the short term, the dollar is expected to remain strong, supported by ongoing geopolitical tensions unless signs of easing emerge. Investors should remain alert to sudden peace signals or data surprises that could trigger a correction. Next week’s economic calendar highlights the March 17-18 Fed meeting, where the dot plot and policy language will be key indicators. It is advisable to monitor oil prices and dollar correlation, managing positions cautiously.

【FAQs】

Q: Why do geopolitical conflicts directly boost the dollar index?

A: Escalating Middle East tensions increase global risk aversion, prompting investors to flock to the dollar as a traditional safe haven. Meanwhile, U.S. energy independence benefits the dollar when oil prices are high, reducing external shocks, while other economies face higher imported inflation. This asymmetric advantage amplifies dollar attractiveness, creating a positive feedback loop.

Q: Why did the GDP and PCE data released today not drag down the dollar?

A: Although GDP growth was below expectations, the core PCE inflation met forecasts, indicating persistent inflation. Narrowing trade deficits and stable employment data highlight economic resilience. Markets focus more on geopolitical themes than individual data points; weak growth actually supports the case for the Fed maintaining high rates, indirectly benefiting the dollar.

Q: What is the reason for the significant downward revision of the 2026 rate cut expectations?

A: Rising oil prices have increased inflation uncertainty, and the employment market shows no significant deterioration, leading policymakers to adopt a cautious stance. The market has adjusted expectations from multiple rate cuts to only one, reflecting consensus on prolonged high rates, which maintains the dollar’s interest rate advantage.

Q: Why do mainstream media uniformly favor the dollar’s safe-haven role?

A: Authorities like Reuters, FXStreet, and Bloomberg observe that EUR and JPY are hitting multi-month lows, with dollar positions rising sharply. Uncertainty from war and energy price volatility make the dollar the preferred defensive asset, rather than relying solely on economic data.

Q: How should investors view the long-term outlook for the dollar in the current environment?

A: The short-term bullish trend is clear, but if geopolitical tensions ease or inflation unexpectedly falls, the dollar could face a correction. The key is to monitor Fed signals and oil price movements continuously, diversify risk, and employ interest rate differential strategies to grasp the core logic beyond short-term fluctuations.

(Author: Wang Zhiqiang HF013)