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20 Dec 2024

US Dollar Index hovers near fresh 25-month highs, 108.50, PCE Inflation awaited

  • The US Dollar Index marked 108.49, the highest level not seen since November 2022, in the previous session.
  • The US Dollar strengthened as the Fed emphasized adopting caution regarding policy outlook.
  • US Gross Domestic Product Annualized reported a 3.1% growth rate in Q3, exceeding the expected 2.8% increase.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major currencies, maintains its position near 108.50, the highest level not seen since November 2022. This follows the Federal Reserve's (Fed) hawkish 25 basis point (bps) rate cut on Wednesday, which lowered its benchmark lending rate to a two-year low of 4.25%-4.50%.

The US Dollar strengthened as US Treasury bond yields surged by more than 2.50% on Wednesday, following the Fed's emphasis on exercising caution regarding additional rate cuts. Fed Chair Jerome Powell explained that the central bank would be wary of further cuts, as inflation is expected to remain persistently above the 2% target. As of writing, the 2-year and 10-year yields stand at 4.30% and 4.56%, respectively.

The Fed's monetary policy statement indicated that economic activity remained robust while noting that labor market conditions had softened. The Fed's Summary of Economic Projections (SEP), or "dot-plot," forecasted only two rate cuts in 2025, a reduction from the four cuts projected in September.

In the United States (US), data showed on Thursday that the US Gross Domestic Product (GDP) Annualized reported a 3.1% growth rate in the third quarter, surpassing both market expectations and the previous reading of 2.8%. Additionally, Initial Jobless Claims dropped to 220,000 for the week ending December 13, down from 242,000 in the prior week and below the market forecast of 230,000.

Traders will likely observe key economic figures from the United States including Personal Consumption Expenditures (PCE) and Michigan Consumer Sentiment Index data, scheduled to be released by the US Bureau of Economic Analysis on Friday.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (MoM)

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 MoM figure compares the prices of goods in the reference month to the previous month.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.

Read more.

Next release: Fri Dec 20, 2024 13:30

Frequency: Monthly

Consensus: 0.2%

Previous: 0.3%

Source: US Bureau of Economic Analysis

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.

Dec 20, 2024

USD/CHF gains ground above 0.8950 as traders brace for US PCE data

The USD/CHF pair holds positive ground around 0.8980 during the early European session on Friday.
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Dec 20, 2024

USD/CAD moves toward multi-year highs above 1.4400 due to risk aversion, lower Oil prices

USD/CAD retraces its recent losses and edges higher toward 1.4467, the highest level not seen since March 2020, which was recorded in the previous session.
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