By Gertrude Chavez-Dreyfuss
As the world’s top investment manager and financial market journalist, I bring you the latest updates on the U.S. dollar’s performance. The dollar gained on Friday following the release of key inflation data that aligned with forecasts. Additionally, personal spending and income growth provided strong support, leading to expectations that the Federal Reserve will opt for a smaller 25 basis points rate cut next month, rather than the previously anticipated 50 bps.
Market participants were divided on the size of the rate cut, with some expecting a larger reduction based on the belief that the Fed needed to catch up in terms of easing. U.S. rate futures implied a 31% chance of a 50 basis-point cut next month, down from the previous day’s 35% probability. The market has fully priced in the Fed’s first easing in over four years at the September meeting, with expectations of approximately 100 bps of cuts by the end of 2024.
Following the inflation data, the dollar saw a significant daily gain of 0.8% against the yen, its largest in two weeks. It was also up 1.2% for the week, marking its biggest weekly rise since mid-June. However, the dollar remained down 2.6% for August, declining for the second consecutive month against the Japanese currency.
The personal consumption expenditures (PCE) price index rose 0.2% last month, in line with expectations, while consumer spending increased by 0.5%. These figures, coupled with income growth, have reinforced the likelihood of a rate cut next month.
Looking ahead, the employment data next week will play a crucial role in determining the size of the rate cut. Chief market economist Peter Cardillo predicts the possibility of three rate cuts, with a potential half a percent reduction in September depending on the employment figures.
Overall, the U.S. dollar index, which measures its value against six major peers, climbed to a 10-day high after the inflation data release. The index was last up 0.3% at 101.7, on track for its best weekly performance since early April. Despite this, the dollar saw a 2.6% decline for the month of August, its weakest performance since November last year.
In conclusion, the U.S. dollar’s recent movements have been influenced by key economic indicators and market expectations surrounding the Federal Reserve’s upcoming decisions on interest rates. As the world’s best investment manager, it is important to stay informed about these developments to make informed decisions about your investments and financial future.
