The Dollar is Steady Waiting for the Fed

The U.S. Dollar is exhibiting a neutral trend this week, with the U.S. Dollar index showing a slight 0.1% increase to 103.93 points. The EURUSD pair remains mostly unchanged, hovering slightly above the resistance at 1.08200-1.08400. In the previous week, the pair retraced to 1.08000 after approaching 1.09400.

Macroeconomic data in the United States is favoring the weakening of the Dollar. The U.S. Q4 2023 GDP estimate was revised down to 3.2% QoQ from the previous 3.3%, while the Atlanta Federal Reserve (Fed) lowered its Q1 2024 GDP estimate to 2.1% QoQ from the earlier projection of 3.0%. Additionally, the number of jobless claims is on the rise. Although the Dollar could find some support from increasing PMI numbers in the manufacturing sector—Markit Manufacturing PMI in February rose to 52.2 points from 50.7 points—this was offset by a drop in the ISM Manufacturing PMI to 49.1 points from 47.8 points.

Investors may be hesitant to make significant moves ahead of upcoming important news. The WisdomTree Bloomberg U.S. Bullish Dollar Fund (USDU) reported minimal capital inflows of $1.3 million last week, indicating that investors are awaiting more reliable signals for the direction of the Greenback. Such signals may emerge during Fed Chair Jerome Powell's testimony scheduled for Wednesday and Thursday. The meeting of the European Central Bank (ECB) on Thursday could also provide signals, potentially impacting the euro if the ECB continues to delay interest rate cuts.

Powell is expected to maintain a relatively hawkish rhetoric, as a cooling American economy should not outweigh persistently high inflation numbers showing signs of acceleration. This is likely preventing a significant weakening of the Dollar. The next data release on U.S. inflation for February is scheduled for March 12. If the EURUSD remains within the range of 1.08000-1.08500 on this news, the pair may remain unchanged before the Fed meeting on March 20.