'Torrid week' for US Dollar ahead of today's PCE index

It's been a torrid week for the US dollar, which looks on course to end the week at or around its lowest level versus its major peers since at least February 2022. This seemed almost inconceivable less than a week or so ago, at a time when markets were bracing for the possibility of a further blow up in the Middle East conflict.

Since then, however, the news of the Israel-Iran ceasefire and the aforementioned concerns over the credibility of the Federal Reserve have sent the dollar tumbling. A downward revision to the first quarter GDP print failed to help matters on Thursday.

According to the data, the US economy contracted by 0.5% on an annualised basis in Q1, a sharper downturn than the -0.2% consensus. We note, however, that not only was this downturn largely due to trade distortions, but that more timely economic reports have been slightly less dour.

The PMI figures beat expectations on Monday, as did durable goods orders on Thursday, which leapt by an eye-watering 16.4% in May (the largest increase in over a decade) - this was mostly due to a massive one off booking of aircraft by Boeing.

Excluding transportation, orders increased by a far more modest 0.5% MoM. Next up will be today’s PCE inflation figures - the Fed’s preferred measure of price growth.”