US Dollar Index (DXY) holds gains near the 100.00 level with PCE Inflation eyed

The Dollar holds gains on Thursday, with all eyes on the US PCE Prices Index.
A hawkish message from Fed Powell, strong GDP, and upbeat employment data boosted the US Dollar on Wednesday.
Later today, US PCE inflation data is expected to show that price pressures remain elevated.

Guillermo Alcala FXStreet

The US Dollar has nudged lower on Thursday, following a five-day rally, but remains right below two-month highs, with the psychological 100.00 on sight supported by solid US data and a hawkish message from Fed Chairman Powell, ahead of the release of the US PCE Prices Index report.

The USD Index, which measures the value of the Dollar against its main peers, remains supported above 99.50, consolidating gains after having rallied nearly 3% in the previous five days, and is on track for its first positive monthly performance so far this year.

The Fed defends its independence and boosts the Dollar

On Wednesday, the Federal Reserve left its benchmark interest rate unchanged, and Chairman Powell defended the bank’s independence against political pressures to ease its monetary policy.

Powell observed that the economy is strong and that inflation remains high and requested more time to better assess the economic impact of Trump’s tariffs, which puts the September rate cut the market was longing for into serious question. Investors pared back bets of rate cuts for this year to 35 bps, from around 50 bps ahead of the meeting, and the chances of a September cut were slashed to 43% from 63% earlier this week.

The Dollar extended its rally after the Fed decision and maintains its bullish stance ahead of the release of the US PCE Prices Index data. The market consensus anticipates a hotter headline inflation, with the yearly rate accelerating to 2.5% from the previous 2.3% and the Core PCE Price Index steady at the 2.7% yearly rate.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core 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 PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

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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