Markets Weekly Outlook – US Dollar, Inflation & PMI Data Analysis

Risk assets continue to face challenges, even though there have been slight gains in the S&P 500 and Dow Jones indices. This situation highlights ongoing investor concerns regarding U.S. trade policies and the Federal Reserve’s approach to managing inflation.

This week, the focus is on key economic data, including PMI and inflation figures from the United States, Europe, the UK, and the Asia-Pacific region. Additionally, significant events such as Japan’s Consumer Price Index (CPI), China’s lending rate announcement, and the UK’s spring economic statement will be closely monitored.

Week in Review: Markets in Flux as Federal Reserve and the BoE Keep Rates on Hold

In the past week, markets have faced difficulties yet again, as the hopes for a rebound in risk assets were met with renewed selling pressure. Although the S&P 500 and Dow Jones are set to finish the week on a positive note, underlying selling activity persists.

Investor sentiment has been strained, leading to substantial withdrawals from global equity funds shortly before March 19, as concerns grow about potential repercussions from U.S. President Donald Trump’s stringent trade policies on the global economy.

There was a moment of optimism following the Federal Open Market Committee (FOMC) meeting, but this optimism quickly dissipated as sellers re-entered the market in large numbers.

According to LSEG Lipper data, there was a net sale of $29.7 billion in global equity funds during the week, marking the largest weekly outflow since December 18.

The FOMC meeting brought back a phrase often met with skepticism in markets: 'transitory.' Fed Chair Jerome Powell used this term when discussing the potential for tariffs to create upward pressure on inflation. This issue will be crucial for market performance in the coming year and will influence the number of rate cuts the Central Bank can accommodate.

On the foreign exchange front, the U.S. Dollar experienced a rally, breaking above a significant resistance level at 104.00. This strengthening of the Dollar has resulted in declines for both EUR/USD and GBP/USD pairs. While the Yen struggled to hold onto its recent gains, USD/JPY saw only a modest increase of approximately 0.23% for the week.

Gold prices maintained their upward trajectory this week, achieving a new year-to-date high near $3050 per ounce. However, there was a slight pullback on Friday, possibly attributed to a stronger U.S. Dollar and profit-taking actions.

Crude oil prices also saw a rebound this week but remained within a narrow trading range. Following new sanctions on Iran, it appeared Thursday could usher in further price increases, yet Friday's trading saw oil prices retreat as the strong Dollar encountered a significant resistance level.

The Week Ahead: PMI and Inflation Data in Focus

Asia Pacific Markets

This week, the Asia Pacific region will concentrate on inflation data coming from Japan, alongside the update of the medium-term lending rate from China.

Japan’s Tokyo CPI and manufacturing PMI will take center stage. On Monday, flash PMI data will be released, followed by Tokyo's CPI on Thursday. Although Tokyo’s prices may slightly decline due to energy subsidies and stable fresh food costs, core prices (excluding fresh food and energy) are expected to maintain an increase of 1.9%. The services PMI may show improvement due to robust wage growth, while the manufacturing PMI could weaken owing to U.S. tariffs.

China is scheduled to announce its medium-term lending facility rate on Monday, with expectations that the one-year rate will remain at 2.0%. On Thursday, industrial profit data for 2025 will be released, with the key focus on whether profits can rise again despite challenging comparisons to last year.

Europe + UK + US

In developed markets, PMI data will be available from the U.S., Europe, and the UK, capturing attention due to worries over global economic growth. Additionally, the Federal Reserve’s preferred inflation measure will be published on Friday, revealing February's PCE figures.

In the UK, the market is looking forward to the spring statement from Chancellor Rachel Reeves, scheduled for March 26. This address will focus on addressing the increasing costs of debt interest and managing strained public finances. It is expected that Chancellor Reeves will outline spending cuts, particularly impacting welfare and departmental budgets, to recover the £10 billion fiscal space lost due to rising borrowing expenses. However, analysts suggest that these cuts may provide only a temporary solution, foreshadowing further tax hikes in the autumn.

The UK government hopes economic reforms, like adjustments to planning regulations and enhancing ties with the EU, will foster growth, but results from these reforms are unlikely to be immediate. As choices dwindle, the Treasury faces tough decisions as it tries to balance the need for spending cuts against the backdrop of significant political and economic challenges.

In the U.S., consumer sentiment and spending data will also come to the forefront. Confidence among consumers has been declining owing to fears surrounding job and benefit cuts resulting from government spending reductions. Concerns that tariffs may contribute to higher prices, alongside falling stock markets, add to the economic anxiety.

Despite weak sentiment, Fed Chair Powell has downplayed its reliability as an indicator of spending growth. February's personal spending data will be critical as January indicated declines. A rebound of +0.7% nominal and +0.4% volume is expected, but there might be further weakness in overall spending that could lead the Federal Reserve to contemplate a potential rate cut in September.

Chart of the Week – US Dollar Index (DXY)

This week, attention returns to the U.S. Dollar Index as it aims to consolidate its recent gains and continue pushing forward.

The DXY has surpassed the essential resistance point at 104.00; if it closes the week above this level, it would likely encourage bullish sentiment.

The 14-period RSI has moved out of oversold territory, suggesting a possible shift in market momentum.

Immediate resistance is positioned at 105.00, a psychological level also aligning with the 200-day moving average. This indicates the importance of the 105.00 level as the DXY approaches this marker.

A breakthrough above 105.00 may focus attention on further resistance levels at 105.63 and 106.13.

Meanwhile, support levels remain at 103.65 and 103.17, respectively.

US Dollar Index (DXY) Daily Chart – March 21, 2025

Key Levels to Consider:

Support

• 103.65
• 103.17
• 102.64

Resistance

• 105.00
• 105.63
• 106.13

Markets, US Dollar, Inflation, PMI, Economy