The US Dollar on the Move: A Friday of Anticipation
- The US Dollar remains steady, seeking direction on this pivotal Friday.
- Market focus shifts to the release of the PCE inflation gauge.
- US Dollar Index consolidates within September’s range.
Today, the US Dollar (USD) is trading flat to slightly higher as traders eagerly await the release of the Personal Consumption Expenditures (PCE) Price Index for August. The PCE serves as the Federal Reserve’s (Fed) preferred metric for gauging inflation and plays a crucial role in shaping future policy decisions. As we approach the Fed’s upcoming rate decision in November, the PCE data could potentially sway the markets if it deviates from consensus expectations.
Reflecting on Thursday’s lackluster performance, neither Fed commentary nor economic data managed to significantly impact the DXY. With only one trading day left in the week, all eyes are now on the PCE numbers and the University of Michigan Consumer Sentiment report to potentially inject some momentum into the market.
Daily Market Movers: Pivotal Data Releases and Global Trends
- At 12:30 GMT, the August PCE Price Index will be unveiled, featuring key expectations:
- Monthly headline PCE forecasted to dip to 0.1% from the previous 0.2%.
- Monthly core PCE anticipated to maintain a steady growth of 0.2%.
- Yearly headline PCE projected to rise by 2.3%, following a 2.5% increase in July.
- Yearly core PCE expected to increase by 2.7% after a reading of 2.6% in the previous month.
- Personal Income set to increase by 0.4%, up from 0.3% in July.
- Personal Spending forecasted to decrease by 0.2%, compared to the previous 0.5%.
- At 14:00 GMT, the final September reading of the University of Michigan Consumer Sentiment will be released:
- Consumer Sentiment likely to rise to 69.3 from the initial reading of 69.0.
- The 5-year inflation expectation rate expected to remain stable at 3.1%.
- Asian markets closing the week positively, with Chinese markets entering Golden Week on a high note.
- US futures show stability, while European equities exhibit mild gains.
- The CME Fedwatch Tool indicates a 51.3% probability of a 25 basis-point rate cut in the upcoming Fed meeting, with 48.7% pricing in a 50-basis-point cut.
- The US 10-year benchmark rate hovers at 3.79%, eyeing a test of the three-week high at 3.81%.
US Dollar Index Technical Analysis: Navigating Rate Cut Expectations
The US Dollar Index (DXY) shows hesitation as market sentiment fluctuates between expectations of a 25 or 50 basis point rate cut in November, as indicated by the CME Fedwatch tool. This uncertainty has kept the DXY within a tight trading range, awaiting a decisive catalyst for a significant move. Despite modest expectations for the PCE data release today, the market remains poised for potential shifts in the USD’s value.
Key technical levels for the DXY include:
- Upper range resistance at 101.90, with further targets at 103.18 and the 55-day Simple Moving Average (SMA) at 102.30.
- Downside support at 100.22 (September 18 low), with potential further weakness towards the July 14, 2023 low at 99.58.
Fed FAQs: Understanding the Federal Reserve’s Role
Monetary policy in the US is primarily driven by the Federal Reserve (Fed), which aims to achieve price stability and full employment through interest rate adjustments. When inflation exceeds the Fed’s 2% target, interest rates are raised to curb rising prices, strengthening the USD. Conversely, rate cuts may be implemented to stimulate borrowing and economic growth, impacting the Greenback’s value.
The Fed conducts eight policy meetings annually, with the Federal Open Market Committee (FOMC) responsible for making monetary policy decisions based on economic conditions. The FOMC comprises twelve Fed officials, including Board of Governors members and regional Reserve Bank presidents.
In times of crisis or low inflation, the Fed may resort to Quantitative Easing (QE) to boost credit flow by purchasing bonds. Conversely, Quantitative Tightening (QT) involves reducing bond purchases to strengthen the USD.