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- The DXY is regaining positive momentum amid some repositioning ahead of the US PCE price index.
- Recent hawkish comments from Federal Reserve officials support the case for one rate cut this year.
- Therefore, crucial inflation data will play a major role in driving the US dollar in the near term.
The US Dollar (USD) is attracting new buyers after the previous day’s decline due to weak US macroeconomic data, rising to a two-month high during the Asian session on Friday. The US Dollar Index (DXY), which tracks the US dollar against a basket of currencies, is currently positioned just above 106.00, up 0.15% on the day, as traders look to crucial US inflation data for some useful momentum.
The Federal Reserve’s Preferred Measure of Inflation – Personal Consumption expenses Personal Consumption Price Index (PCE) – due out later in the early North American session at 12:30 GMT. A weaker-than-expected PCE or a figure in line with market expectations would support the case that the Fed will cut interest rates twice this year, which in turn could weaken the US dollar. Meanwhile, any upside surprise could push back the expected timing of the first Fed cut and send the US dollar higher.
Given the key risks associated with the data, recent comments from a number of FOMC members indicate that the US central bank is in no rush to begin an interest rate cutting cycle. In fact, Fed Governor Michelle Bowman said on Thursday that we are not yet at a point where we can consider cutting interest rates as upside risks associated with inflation persist. Furthermore, Atlanta Federal Reserve Bank President Rafael Bostic He noted that inflation remains a major concern and that the central bank wants to be absolutely sure that inflation will return to 2% before an initial cut.
This overshadowed the lacklustre US data released on Thursday, which suggested that growth momentum in the world’s largest economy is moderating. The release of US personal consumption expenditures data on Friday will therefore boost expectations for future policy decisions by the Federal Reserve, which in turn should boost the US dollar in the near term. Meanwhile, the first US presidential debate took place between President Joe Biden and Republican presidential candidate Donald Trump card Economic data failed to provide any boost to the US dollar, which remains on track to end the week in the green for the fourth consecutive week.
Economic indicator
Personal consumption expenditures – price index (annual)
The Personal Consumption Expenditures (PCE) index, released monthly by the U.S. Bureau of Economic Analysis, measures changes in the prices of goods and services purchased by consumers in the United States. The annual reading compares prices in the reference month to the previous year. Price changes can cause consumers to switch from one good to another and the PCE deflator can take such substitutions into account. This makes it the Federal Reserve’s preferred measure of inflation. Generally speaking, a high reading indicates a strengthening U.S. dollar (USD), while a low reading indicates a falling dollar.
