US Dollar Hesitates Ahead of PCE
The US dollar index weakened slightly around 101.50 ahead of the release of May's Personal Consumption Expenditures (PCE) inflation data. Despite the slight weakening, the DXY remains near its highest level in more than a year, having touched 101.80 in previous trading. This indicates that the dollar has not lost steam, although the market is starting to hold its positions ahead of the important data release.
Investors' primary focus is on the core PCE data, the Federal Reserve's favorite inflation indicator. Markets expect core PCE to rise to 3.4% annually from 3.3% in April. If this figure does rise, inflationary pressures are considered to remain strong and could increase the likelihood of the Fed raising interest rates in the coming months.
Expectations regarding Fed policy have shifted quite sharply. Previously, the market had expected a rate cut, but after the Middle East wars boosted energy and inflation pressures, expectations reversed. Now, the market sees the Fed's next policy move as more likely to be a rate hike, rather than a rate cut.
The US dollar continues to receive support from a combination of high inflation, a relatively strong US economy, and the hawkish stance of Fed Chairman Kevin Warsh. Higher interest rates make dollar-based assets more attractive, especially compared to other currencies whose central banks are becoming more cautious. Therefore, despite a brief decline in Treasury yields, the dollar remained strong as investors still view the greenback as a key asset amid uncertainty.
Going forward, the direction of the DXY will depend heavily on the PCE data. If the PCE is higher than expected, the dollar has the potential to strengthen again and test the 101.80 to 102.00 area. However, if inflation is lower than expected, the DXY could correct to the 101.20 to 101.00 area. For the gold, crypto, and major currency markets, this PCE data will be a crucial trigger as it can determine whether pressure from a strong dollar and expectations of interest rate hikes persist. (Asd)
Source: Newsmaker.id
