US Dollar Index climbs to fresh two-month top ahead of the key US PCE data

DXY regains positive traction amid some repositioning ahead of the US PCE Price Index.
The recent hawkish comments by Fed officials back the case for one rate cut this year.
Hence, the crucial inflation data will play a key role in driving the USD in the near term.

Haresh Menghani FXStreet

The US Dollar (USD) attracts fresh buyers following the previous day's softer US macro data-inspired downfall and climbs to a fresh two-month peak during the Asian session on Friday. The USD Index (DXY), which tracks the Greenback against a basket of currencies, is currently placed just above the 106.00 mark, up 0.15% for the day, as traders look to the crucial US inflation data for some meaningful impetus.

The Federal Reserve's (Fed) preferred inflation measure – the Personal Consumption Expenditure (PCE) Price Index – will be released later during the early North American session at 12:30 GMT. A lower-than-expected PCE deflator or a number that is in line with market expectations will back the case for two rate cuts by the Fed this year, which, in turn, could weaken the USD. Meanwhile, any upward surprise should push back the expected timing for the first Fed cut and trigger a fresh leg up for the buck.

Heading into the key data risk, the recent comments from a slew of influential FOMC members suggested that the US central bank is in no rush to start its rate-cutting cycle. In fact, Fed Governor Michelle Bowman said on Thursday that we are not at a point yet to consider a rate cut as the upside risks to inflation persist. Moreover, Atlanta Fed President Raphael Bostic noted that inflation remains a chief concern and that the central bank wants to be absolutely certain that inflation will return to 2% before an initial cut.

This overshadowed Thursday’s unimpressive US data, which indicated that growth momentum in the world's largest economy is moderating. Hence, Friday's release of the US PCE data will drive expectations about the Fed's future policy decisions, which, in turn, should drive the Greenback in the near term. Meanwhile, the first US presidential debate between President Joe Biden and Republican Presidential Nominee Donald Trump failed to provide any impetus to the USD, which remains on track to end in the green for the fourth straight week.

Economic Indicator

Personal Consumption Expenditures - Price Index (YoY)

The Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

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