Next move depends on the data

The week that was

The US Dollar’s (USD) upward momentum from the previous week seems to have encountered a tough nut to crack in the 98.00 region, as measured by the US Dollar Index (DXY).

In the meantime, investors continued to assess last Friday’s SCOTUS ruling against President Trump’s global tariffs and its potential impact on inflation and the real economy.

In addition, the geopolitical factor kicked in once again, this time with the US and Iran exchanging threats surrounding the nuclear issue… once again.

Overall, it is not surprising that trade uncertainty, geopolitics, and traders’ steady caution have led to erratic price action in the buck in recent days.

SCOTUS vs. Trump’s tariffs: What it really means

In simple terms, the US Supreme Court just told President Trump he used the wrong legal tool to impose his sweeping tariffs.

The 6–3 ruling said the 1977 emergency law he relied on, the International Emergency Economic Powers Act (IEEPA), does not give a president the power to impose broad tariffs. Under the Constitution, tariffs are Congress’s domain. A president must clearly grant the authority to take actions of major economic significance. In this case, the Court said it wasn’t.

The decision is a meaningful setback. Trump has used tariffs as a core economic and foreign policy weapon, generating over $175 billion under this framework alone. But the ruling does not kill tariffs altogether.

In fact, within hours, Trump signalled he would pursue alternative legal routes, and he even announced a 10% global tariff under a different authority. Three dissenting justices also suggested he may simply have “checked the wrong statutory box”.

So what changes?

IEEPA gave Trump the speed and flexibility to implement economic sanctions. Other trade laws exist, but they are slower, narrower and more procedural. The blunt instrument is gone. The toolbox remains.

For markets, the move creates a mix of relief and fresh uncertainty. Some tariffs could be challenged or refunded, but new ones may replace them. Trade tension is unlikely to disappear; it may just take a different legal shape.

The bottom line: The delay was not the end of Trump’s tariff strategy.

It was a constraint on how aggressively and how quickly he could deploy it.

Fed on hold, confidence building

The Federal Reserve (Fed) did exactly what everyone expected in January, leaving rates unchanged at 3.50% to 3.75%. The decision itself was devoid of drama. What mattered was the tone.

This time, officials sounded a touch more relaxed. Growth looks steadier, the labour market no longer appears to be deteriorating, and the overall backdrop feels less fragile than it did a few months ago. Chair Jerome Powell described policy as being in a good place, pointing to stable employment and gradual easing in services inflation. The recent bump in headline inflation was largely brushed aside as tariff-related noise rather than the start of a new trend.

The Minutes told the same story. Almost everyone was comfortable holding steady. A couple of officials would have preferred a cut, but there is no sense of urgency. Although there is no set course, rate cuts are still feasible if inflation keeps cooling.

For now, the Fed is not pivoting. It is waiting, watching and letting the data lead the way.

Fed voices: No rush, no pivot, no illusions

One clear takeaway from the latest round of Fed commentary is the absence of urgency.

Chicago Fed President Austan Goolsbee (2027 voter) expressed openness to rate cuts, provided that inflation genuinely resumes its decline. He cautioned against leaning on optimistic productivity assumptions as an excuse to ease policy prematurely. In short, cuts are possible, but hope is not enough. The data need to be delivered.

Boston Fed President Susan Collins (2028 voter) struck a similarly measured tone. Holding rates where they are for some time, she suggested, will likely prove appropriate. But she was careful to stress that multiple scenarios remain in play. The approach, for now, is patient and deliberate.

Thomas Barkin (Richmond Fed, 2027 voter) echoed that balance. He believes that policy is well-positioned to address risks. The labour market looks stable, stuck in what he described as a low-hire, low-fire equilibrium. Yet stability alone is not sufficient. Inflation is still above target, and officials want clearer signs of moderation before shifting stance.

Kansas City Fed President Jeffrey Schmid (2028 voter) sounded more wary. Inflation, he reminded, remains the central problem. He stopped short of signalling the next move, but his scepticism toward last year’s cuts still lingers in the background. The bias here leans cautious, if not outright hawkish.

St. Louis Fed President Alberto Musalem (2028 voter) rounded out the message. The current rate setting, he argued, strikes the right balance between growth risks and inflation risks. His baseline sees inflation drifting back toward 2% later this year, while the labour market stabilises. That outlook does not demand action today.

Put it all together and the theme is unmistakable. The Fed is comfortable holding steady. Cuts remain conditional on clearer progress in inflation. Hikes are not being actively discussed, but they remain a possibility.

For markets, and especially for the US Dollar, this is a steady-hand story. Policy is not pivoting. It is waiting.

And until inflation decisively cools, patience remains the dominant doctrine inside the Federal Reserve.

Inflation loses impulse, but the Fed is not rushing

Inflation in the US has started the year on a slightly softer footing, with the headline Consumer Price Index (CPI) easing to 2.4% YoY in January, while the core measure slipped to 2.5%. In broad terms, prices are still moving in the right direction, but they’re not yet at the Fed’s 2% target.

For markets, that was enough to keep the disinflation narrative alive and nudge rate cut expectations a little higher further out. But from the Fed’s perspective, this is progress, not victory. Inflation remains above target, and the full impact of tariffs on consumer prices is still uncertain.

So, while investors are tentatively leaning toward easing, policymakers continue to emphasise caution.

It is also worth remembering that December’s Personal Consumption Expenditures inflation ran hotter than expected, with headline PCE at 2.9% YoY and core at 3.0%. If that pattern holds, January’s Personal Consumption Expenditures (PCE) may not look quite as reassuring as the latest CPI print suggests.

Positioning: From crowded shorts to cautious neutral

The latest Commodity Futures Trading Commission data suggest something quietly important is happening beneath the surface of the US Dollar story.

For the first time since the summer of 2025, speculators have nudged back into net long territory, around 330 contracts in the week to February 17. While it may not be a dramatic move, it does signal a change. The heavy bearish consensus that took hold last year is no longer the dominant narrative.

What makes it more interesting is what is happening alongside it. Open interest has fallen for a third straight week, down to roughly 26.6K contracts. That tells you this is not a surge in fresh Dollar buying. It feels more like traders are cleaning up their books, closing crowded short positions and stepping back rather than aggressively rebuilding exposure.

In other words, this is less about new conviction and more about reduced pessimism.

The Dollar has already absorbed a fair amount of bad news, and positioning no longer looks stretched or dangerously one-sided. That lowers the risk of another sharp sell-off driven purely by positioning dynamics.

From here, the Greenback probably needs a fresh spark. Without a new catalyst, whether it is inflation data, a shift in Fed rhetoric, or a change in the broader risk mood, it may simply drift rather than trend.

What’s next for the US Dollar

Next week feels like one that could matter for US markets.

Front and centre is the monthly Nonfarm Payrolls (NFP) report, the usual pulse check on the labour market. If hiring remains solid, it reinforces the resilience story. If cracks start to show, rate cut expectations could quickly resurface.

Not far behind are the manufacturing and services surveys from the Institute for Supply Management (ISM). Together, they will help answer a simple question: Is momentum in the real economy holding up or beginning to cool?

Beyond the data, it is the familiar chorus of Fed speakers. In a week like this, even subtle shifts in tone can move markets. Traders will analyse every comment for hints on inflation and the Fed’s patience.

Technical landscape

In the daily chart, the US Dollar Index (DXY) trades at 97.64. The near-term bias stays mildly bearish as price holds below the 55-day and 100-day Simple Moving Averages (SMAs) clustered in the 98.60-98.00 band, while also trading beneath the declining 200-day SMA at 98.35, keeping the broader trend under pressure. The Relative Strength Index (RSI) hovers around 50, underscoring a lack of strong momentum and aligning with a drifting downside tone rather than an impulsive selloff. The Average Directional Index (ADX) sliding toward the mid-teens highlights waning trend strength, suggesting sellers are in control but without strong directional conviction.

Immediate resistance stands at 98.03, where price would first need to regain a foothold to ease current downside pressure, with the next barrier at 99.50 ahead of 100.39. On the downside, support is seen at 95.56, followed by 95.14 and then 94.63, levels that define the lower boundary of the current broader range. A clear break below 95.56 would open the door toward the deeper supports, while a sustained daily close above 98.03 would be required to shift the near-term outlook away from the present bearish bias.

(The technical analysis of this story was written with the help of an AI tool.)

Bottom line

Remember that the US Dollar’s rebound in late January and early February had causes. It was rooted in firmer data and a steadier Fed narrative. The move gathered additional momentum when President Trump named Kevin Warsh as Jerome Powell’s successor, a pick that markets interpreted as potentially less dovish than some had expected.

Now, the focus shifts back to what really matters: the numbers.

Investors will be closely watching the US calendar, particularly inflation and labour market releases. For the Fed, jobs remain the clearest pulse check on the economy. Policymakers are alert to any meaningful slowdown, but they are equally conscious that inflation is still not comfortably back at 2%.

The price pressures are still slightly too high to be comfortable. If the disinflation trend begins to stall, markets could quickly scale back expectations for early or aggressive rate cuts. In that scenario, the Fed would likely lean harder into patience, and that steadier, more cautious tone could gradually lend the Dollar renewed support, regardless of the political backdrop.