The US Dollar is set to end the week fairly uneventfully with PCE as the last data on the docket

VaselineSeptember 27, 2024

0 4 minutes read

The US Dollar is set to end the week fairly uneventfully with PCE as the last data on the docket

The US dollar is trading in the green across the board, albeit with minor gains.
All eyes are on the last data point for this week, the PCE inflation gauge.
The US Dollar Index is consolidating and rebounding in the September range.

The US dollar (USD) is trading slightly higher on Friday as traders look forward to the release of the August Personal Consumption Expenditure (PCE) price index. PCE is the Federal Reserve’s (Fed) preferred inflation gauge to determine how their policy rate is influencing inflation. With the data-driven approach to the upcoming policy rate decision in November, the PCE reading can and could be moving in the market should it print from the consensus.

On the economic data side, looking back at Thursday, it was a very disappointing day with no Fed comments or data points that failed to move the needle substantially for the DXY. With just one day of trading left, either the PCE number or the University of Michigan Consumer Sentiment reading could stir things up.

Daily digest market moves: PCE last man standing

At 12:30 GMT, the Personal Consumption Expenditure Price Index for August will be released:
- Monthly PCE is expected to fall to 0.1% from 0.2% previously.
- Core monthly PCE is expected to rise steadily by 0.2%.
- Annual PCE is expected to rise 2.3% after July’s 2.5% increase.
- Annual core PCE is expected to rise 2.7% after a reading of 2.6% the previous month.
- Personal income is expected to rise 0.4%, up from 0.3% in July.
- Personal spending is expected to fall by 0.2% to 0.3%, coming from 0.5%.
At 14:00 GMT, the University of Michigan will publish its final reading for September:
- Consumer sentiment should tick up to 69.3 from 69.0 in the first reading.
- The expected 5-year inflation rate is expected to remain stable at 3.1%.
Asian equity markets end the week with a bang as China heads into Golden Week on a high note. US futures are flat, while European stocks are slightly in the green.
The CME Fedwatch tool shows a 51.3% chance of a 25 basis point rate cut at the next Fed meeting on November 7, while 48.7% is the price for another 50 basis point rate cut. basis.
Benchmark US 10-year yield trades at 3.79%, looking to test three-week high of 3.81%

US Dollar Index Technical Analysis: Markets Pulling Back

The US dollar index (DXY) is hesitant, the CME Fedwatch instrument back to near par for a rate cut of 25 or 50 basis points in November. Constantly switching between the two possibilities moves DXY within a very tight range. A substantial move is needed, and with very low expectations for Friday’s PCE number, it doesn’t look like it’s going to be an eventful Friday.

The high of the September range remains at 101.90. Above, the index could reach 103.18, with the 55-day simple moving average (SMA) at 102.30 along the way. The next upside leg is very cloudy, with the 100-day SMA at 103.52 and the 200-day SMA at 103.75, just ahead of the high round of 104.00.

On the downside, 100.22 (September 18 low) is the first support, and a break could indicate more weakness ahead. Should it occur, the July 14, 2023 low at 99.58 will be the next level to watch. If this level breaks, early 2023 levels approach 97.73.

Frequently asked questions about US dollars

The US dollar (USD) is the official currency of the United States of America and the “de facto” currency of a significant number of other countries where it is found in circulation alongside local banknotes. It is the world’s most heavily traded currency, accounting for more than 88% of total global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, as of 2022. After World War II world, the USD has taken over from the British pound as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement in 1971, when the gold standard disappeared.

The most important factor influencing the value of the US dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability (inflation control) and to promote full employment. Its main tool for achieving these two objectives is the adjustment of interest rates. When prices rise too fast and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the value of the USD. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which affects interest rates.

In extreme situations, the Federal Reserve can also print more dollars and engage in quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (for fear of default). It is a last resort when simply lowering interest rates is unlikely to achieve the desired result. It was the Fed’s preferred weapon to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy US government bonds, mainly from financial institutions . QE usually leads to a weaker US dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing bonds it holds in new purchases. It is usually positive for the US dollar.

VaselineSeptember 27, 2024

0 4 minutes read

Daily digest market moves: PCE last man standing

US Dollar Index Technical Analysis: Markets Pulling Back

Frequently asked questions about US dollars

Vaseline

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