- The dollar index declined following the increase in Core PCE, which is the inflation measure favored by the Fed, in May.
- The US dollar remains weak, with the DXY nearing Thursday’s low of 97.00.
- The Michigan Consumer Sentiment Index and its expectations offer insights into consumer perspectives on the current economic conditions.
The US Dollar Index (DXY) is nearing the 97.00 level as it reacts to the latest inflation figures from the US.
The Core Personal Consumption Expenses (PCE) data released by the US Bureau of Economic Analysis on Friday has added pressure on the DXY.
This report indicates the pace at which prices are rising in the US and reflects the Fed’s inflation preferences, which consequently influence interest rate forecasts.
Personal spending in the US core exceeded expectations
The PCE figures met expectations overall, with a monthly increase of 0.1% in May, consistent with the previous month. Year-over-year, it rose by 2.3%, slightly above April’s 2.2% reading.
Nonetheless, core figures, which omit volatile categories like food and energy, outperformed analyst forecasts, showing both monthly and yearly measurements above expectations.
Core PCE climbed 0.2% month-over-month in May, exceeding the anticipated 0.1%, with a year-on-year growth of 2.7%, above consensus predictions that it would hold steady at 2.6% from April.
In contrast, personal income fell by 0.4% in May, while a 0.3% rise was anticipated following April’s 0.7% gain. Likewise, personal spending dropped from 0.2% in April, falling short of the 0.1% expectation.
The increase in Core PCE puts the Fed in a challenging position regarding future policy decisions.
With President Trump urging the Fed to lower rates, a general decrease in interest rates can stimulate economic growth but may also lead to greater inflation.
Even with inflation above the Fed’s target of 2%, signs of economic slowdown have emerged, complicating their decision-making for possible interest rate cuts in July.
The latest data has contributed to a decline in US Treasury yields, pulling the dollar index closer to significant support at 97.00.
Next, market watchers will focus on the Michigan sentiment and expectations index for further insight into consumer evaluations of the US economic landscape and projections for the coming year.
If consumer confidence continues to wane, the dollar may further weaken against other currencies.
Technical Analysis: Dollar Index Approaching 97.00
Currently, DXY is trading at around 97.05, continuing a downward trend observed over the past months, remaining beneath both the 20-day (98.46) and 50-day (99.31) simple moving averages.
The descending trendline, originating from the February peak, further exacerbates the unfavorable structure and continues to inhibit any upward movements. The relative strength index (RSI) sits at roughly 31.39, indicating it has been oversold but still lacks signs of a rebound.
A decisive break below 97.61 could lead to more significant declines, though recovery may face obstacles around 98.50 and 99.30, where the moving average and trendline converge.
If prices fall below 97.00, the next psychological threshold might be 96.00, which could set the stage for revisiting February lows close to 95.15.
