Dollar Wobbles as GDP Cools, Market Eyes ECB

The US dollar weakened following the release of fourth-quarter GDP figures, which fell slightly short of expectations. This softer economic data, coupled with the European Central Bank’s (ECB) anticipated rate cut, has left the US Dollar Index (DXY) searching for direction below the 108.00 level. Market attention now turns to the ECB and its commentary, particularly in light of recent political developments in the US.

The US GDP growth rate for the fourth quarter registered at 2.3%, missing the consensus forecast of 2.6% and down from 3.1% in the previous quarter. While headline GDP growth cooled, the Personal Consumption Expenditure (PCE) price index rose to 2.3% from 1.5%. However, the core PCE, a key inflation metric, remained unchanged at 2.2%, below the anticipated 2.5%. This mixed bag of economic data paints a picture of a slowing economy with potentially moderating inflationary pressures.

The ECB, as widely expected, lowered its policy rate by 25 basis points. Market participants are now focused on ECB President Christine Lagarde’s upcoming speech and Q&A session for insights into the central bank’s assessment of the economic outlook. Of particular interest will be any comments regarding the US political landscape, a topic that Fed Chairman Jerome Powell explicitly avoided addressing during his recent press conference. Powell firmly stated his commitment to the Fed’s data-dependent approach and refrained from commenting on US politics.