- DXY regained positive momentum amid some repositioning ahead of the US PCE Price Index release.
- Recent hawkish comments from Federal Reserve officials support one rate cut this year.
- Therefore, any significant inflation data will play a key role in moving the US Dollar in the near term.
The US Dollar (USD) rose to a two-month high during Friday’s Asian session, attracting fresh buyers following a soft decline in US macroeconomic data the previous day. The USD Index (DXY), which correlates the US Dollar with a basket of currencies, is currently just above 106.00, up 0.15% on the day. Traders are looking for some meaningful impetus from key US inflation data.
The Federal Reserve’s (Fed) preferred inflation gauge, the personal consumption expenditures (PCE) price index, is due to be released at 12:30 GMT in the early hours of the morning. If the PCE deflator is below expectations or in line with market expectations, it could strengthen expectations that the Fed will cut interest rates twice this year, which could weaken the US dollar. On the other hand, an unexpected increase would push back the expected timing of the Fed’s first rate cut, triggering a new dollar rally.
In the face of significant data risks, recent comments from a number of influential FOMC members suggest the U.S. central bank is in no rush to begin a rate-cutting cycle. Indeed, Fed Governor Michelle Bowman said Thursday that the Fed is not yet ready to consider cutting rates due to continued risks of rising inflation. Additionally, Atlanta Fed President Raphael Bostic noted that inflation remains the top concern and that the central bank wants to ensure inflation returns to 2% before making its first rate cut.
This overshadowed lackluster US data on Thursday which showed a slowing growth momentum in the world’s largest economy.US PCE data due on Friday will therefore raise expectations for the Fed’s upcoming policy decisions, which will boost the US dollar in the short term.Meanwhile, the first US presidential debate between President Joe Biden and Republican presidential candidate Donald Trump did not provide any impetus for the US dollar, which is expected to finish in the positive for the fourth consecutive week.
Economic indicators
Personal Consumption Expenditures – Price Index (YoY)
Published monthly by the U.S. Bureau of Economic Analysis, personal consumption expenditures (PCE) measures the change in prices of goods and services purchased by United States (US) consumers. Year-over-year figures compare prices in a reference month with the previous year. Price changes may cause consumers to trade one good for another, and the PCE deflator allows for such switching to be taken into account. As such, the PCE deflator is the Federal Reserve’s preferred measure of inflation. Generally, a higher reading is bullish for the US Dollar (USD), while a lower reading is bearish.
