US Dollar Index attracts some sellers below the 104.00 mark, focus on US PCE data

The US Dollar Index (DXY) edges lower to 103.85 after retreating from weekly highs of 104.25 during the early European session on Thursday. Investors await the US Core Personal Consumption Expenditures Index (Core PCE) for January, due later on Thursday. This report might offer cues about the trajectory of inflation in the United States and could trigger the volatility in the market. 

Data published by the US Bureau of Economic Analysis (BEA) on Wednesday showed that US Gross Domestic Product (GDP) for the fourth quarter (Q4) expanded at a 3.2% annualized rate. The figure came in below the market consensus and the previous reading of 3.3%. 

Several Fed members in recent weeks agreed that they need additional evidence of inflation data before shifting the monetary policy stance. Meanwhile, the New York Fed President John Williams said that despite the Fed still has a ways to go before reaching its inflation target of 2%, the door is opening for interest rate cuts this year, depending on the incoming data. Fed Governor Bowman stated that inflation will continue to decline with rates remains on hold at the current levels, but it is not yet time to start cutting rates. 

The hotter-than-expected CPI data has caused investors to push back the timing of the first rate cut. The markets have priced in 80 basis points (bps) of rate cuts this year, lower than 175 bps priced in around mid-January. 

Later on Thursday, traders will closely monitor the US Core Personal Consumption Expenditures Index (Core PCE) data for January, which is expected to ease to 2.8% YoY from 2.9% in the previous reading. Also, the US Personal Income, Personal Spending, pending Home Sales and the weekly Initial Jobless Claims are due later in the day.