The US dollar rally is gathering pace as Core PCE, Q4 GDP and rising oil prices reshape Fed rate cut expectations. Volatility risks are building across FX markets — and today’s data could set the tone for the weeks ahead.
Key Highlight
- The US dollar continues to find underlying support
- Core PCE data and Q4 GDP figures will be key market drivers today
Market Recap
The US dollar advanced for a fourth consecutive session, recording its strongest run since January and heading towards its best weekly performance in several months.
Recent US data delivered mixed signals. Weekly jobless claims and the Philadelphia Fed survey both exceeded expectations, reinforcing the resilience of the US economy. However, December’s trade figures revealed a wider deficit, tempering the overall picture. Even so, rate markets have continued to scale back expectations of aggressive Federal Reserve easing, which has kept the dollar well supported ahead of today’s Q4 GDP release.
Geopolitical tensions also remain a key driver. Developments in the Middle East and news of upcoming Russia-Iran naval drills have added to market caution. At the same time, rising friction between Washington and Tehran pushed oil prices to a six-month high. Higher energy prices have strengthened US inflation expectations, further underpinning the dollar.
In broader markets, demand for traditional safe havens increased, lifting gold and US Treasuries. Meanwhile, growth-sensitive currencies such as the Australian and New Zealand dollars struggled, and the Japanese yen failed to gain meaningful traction as elevated oil prices reinforced overall USD strength.
Market Overview:
A packed economic calendar across the UK, eurozone and US could generate increased volatility through today’s session.
Europe & UK – Growth in Focus
Flash February PMI readings will offer an early snapshot of business activity in both the eurozone and the UK. After recent signs of softness, these figures will be important for near-term direction in EUR and GBP.
In the UK, stronger retail sales data has led markets to slightly scale back expectations of aggressive Bank of England rate cuts. While an initial cut still looks highly likely by April and further easing remains priced later in the year, the latest data introduces a degree of caution around the speed of policy loosening.
For sterling, the moderation in rate-cut expectations provides some short-term support. However, with the broader easing cycle still anticipated, sustained upside may be limited unless incoming data consistently surprises to the upside.
United States – Key Data This Afternoon (1:30pm UK time)
Attention then shifts to the US, with several high-impact releases including Core PCE inflation, Q4 GDP, personal income and spending, followed later by flash PMIs.
The dollar has already been underpinned by resilient economic data, firmer inflation expectations and reduced pricing for near-term Federal Reserve cuts. If today’s figures show stronger growth or stickier inflation, USD strength could extend further.
On the other hand, softer readings may prompt a short-term pullback as markets adjust positioning. That said, ongoing geopolitical tensions and elevated oil prices continue to support inflation expectations and have generally favoured dollar demand in recent sessions.
20th February 2026
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