Dollar Slumps as Inflation Fears and Shutdown Risks Grow

U.S. inflation rises to 3.1%, sparking global economic concerns. Asia sees weaker business confidence and the dollar and oil face downward pressure.

Consumer inflation expectations in the U.S. increased to 3.1% in February 2025, marking the first increase after holding steady at 3.0% for three months. This highest rise since May 2024, reflects growing concerns over price growth in key categories such as gas, food, medical care, and rent. Meanwhile, financial markets remain on edge as fears of a U.S. government shutdown and recession risks tied to President Donald Trump’s tariff policies dominate headlines. The dollar index (DXY) dropped overnight low of 103.55, while U.S. stock markets experienced steep declines, adding to global economic uncertainty.

Asia Session: Business Confidence Wanes in Australia

In the Asia session, business confidence in Australia took a hit in February, tumbling from 5 to -1, according to the National Australia Bank (NAB). Sentiment weakened across industries, particularly in mining, recreation, and transport. NAB chief economist Alan Oster highlighted that confidence has fallen below average, signaling caution among businesses amid ongoing trade tensions between the U.S. and its major trading partners, including China, Canada, Mexico, and the European Union. The Australian dollar (AUD) hovered around 0.6270 at the start of the session, reflecting the subdued outlook.

Dollar Slumps as Inflation Fears and Shutdown Risks Grow

Dollar Index (DXY) Under Pressure

The dollar index (DXY) faced downward pressure, slipping to 103.55 overnight. Market participants are closely watching today’s JOLTS Job Openings report, set for release at 2:00 pm GMT. Job openings declined sharply in December, falling from 8.2 million to 7.6 million, with notable drops in professional and business services, healthcare, and finance sectors. While January’s estimates suggest a slight uptick to 7.7 million, recent softer-than-expected employment reports from ADP and the Bureau of Labor Statistics (BLS) indicate a cooling labor market.

Federal Reserve Holds Steady Amid Economic Uncertainty

During its January meeting, the Federal Reserve maintained the federal funds rate at a target range of 4.25% to 4.50%. The central bank emphasized its commitment to achieving maximum employment and 2% inflation over the long term. While economic activity has expanded steadily, inflation remains elevated, prompting the Fed to project just two rate cuts totaling 50 basis points in 2025. GDP growth forecasts for 2024 and 2025 were revised upward to 2.5% and 2.1%, respectively, while PCE inflation projections were adjusted higher.

Commodities and Currencies: Mixed Signals

Gold (XAU) showed a medium bullish bias, supported by cooling labor market data and global economic uncertainty. Meanwhile, oil prices faced headwinds as WTI crude fell below $66 per barrel, weighed down by tariff concerns and OPEC+ production plans.

In currency markets, the euro (EUR) remained buoyed by stronger-than-expected German industrial production data, which rose 2.0% month-on-month in January. The pound (GBP) also saw strong inflows, rising to an overnight high of 1.2946 against the dollar. Conversely, the Japanese yen (JPY) appreciated sharply, pushing USD/JPY toward 146.60, while the Swiss franc (CHF) gained ground amid optimism over a potential Russia-Ukraine ceasefire.

As markets brace for further volatility, all eyes remain on the U.S. Congress’s ability to pass a temporary funding bill ahead of the March 14 fiscal deadline. Failure to do so could trigger a government shutdown, exacerbating recession fears and adding to the fragile global economic outlook. In the Asia session, traders will monitor the NAB Business Confidence report and its implications for the Australian dollar. At the same time, broader market sentiment will likely hinge on developments in U.S. fiscal policy and trade tensions.

Next 24 Hours Bias:

• DXY: Medium Bearish
• Gold (XAU): Medium Bullish
• AUD: Medium Bullish
• EUR: Medium Bullish
• GBP: Medium Bullish
• JPY: Medium Bearish
• CHF: Medium Bearish
• Oil: Medium Bearish

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