Dollar Price Falls on PCE Data: Are Further Losses Ahead?

Dollar Price Falls on PCE Data: Are Further Losses Ahead?

Dollar Price falls after PCE data

The US dollar price fell to an intraday high against major currencies on Friday. The currency came under pressure after data showed inflation eased in the world’s biggest economy last month, boosting expectations that the central bank will cut interest rates this year.

The dollar initially fell against the yen, the currency pair most sensitive to US economic data, as it had a high positive correlation with Treasury yields. However, it rose and traded on the same day, with investors still focused on the large interest rate differential between the US and Japan.

The dollar price was last up slightly against the Japanese unit at 160.815-yen USDJPY, after earlier hitting a 38-year high of 161.27 yen. Traders remained on high alert for intervention from Japanese authorities to boost its currency.

The U.S. currency has posted monthly and quarterly gains versus the yen of about 1.9% and 5.9%, respectively.

Data showed the U.S. personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, was unchanged last month, and followed an unrevised 0.3% gain in April, data showed. In the 12 months through May, the PCE price index increased 2.6% after advancing 2.7% in April.

Following the inflation data, fed funds futures slightly raised the chances of easing in September to around 67%, from about 65% late Thursday, according to LSEG calculations. The market is also pricing between one to two rate cuts of 25 bps each this year.

A separate report on Thursday showed business activity in the Midwest came in better than expected, modestly helping the dollar. The Chicago purchasing managers’ index (PMI) (USCPMI=ECI) jumped to 47.4 from 35 in May, and better than the 40 that economists projected.

University of Michigan consumer sentiment, meanwhile, showed a reading of a better-than-expected 68.2 for June, also dollar-supportive. In addition, respondents to the sentiment survey expect near- and long-term inflation expectations to level out at 3%.

Now, Focus will shift on U.S. nonfarm payrolls report, FOMC meeting Minutes. Further, UK and Franch election polls also add some volatility.

Technical Outlook of Dollar Price

The dollar index retreated from a high of 106.130 (June 26, 2024 high) and traded at 105.552 today. On Friday, the coin was at 105.8660, a small loss of 0.06 percent.

Since last Wednesday, the currency has entered the red and given up more than half a percent of its gains. The appearance of a long bearish candlestick on the chart indicates strong selling pressure for the dollar.

Furthermore, the momentum indicators RSI and its 9 SMA also give a negative crossover.

All the above considerations give the USD index a bearish outlook, but on the downside, the USD index should break below 105.2500 to test the next support at 104.8025-104.2225.

Happy Trading!

Commodity Samachar
Learn and Trade with Ease

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