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US Dollar Index: DXY Falls To 103.00 On Fed Policy Worries; US PCE Inflation In The Spotlight
The US Dollar Index remains at its lowest level in twelve days. United States data continue to suggest an end to the Fed's cycle of hawkishness, but traders seek confirmation. Softening US Treasury bond yields and cautious Wall Street optimism also favour DXY investors. The US Core PCE Price Index and second-tier employment and activity data are anticipated to provide direction.
US Dollar Index (DXY) remains under pressure at the lowest level in two weeks despite an absence of downside momentum amid Thursday's pre-data anxiety. Consequently, the U.S. dollar index versus the six main currencies approaches the 200-day simple moving average (SMA) support of approximately 103.00 during the early hours of the Asian session, and is near 103.15 as of press time.
The US economic calendar dealt the Federal Reserve (Fed) another setback with negative growth and employment indicators the day before, following the release of disappointing US Consumer Confidence and activity data, as well as housing market numbers.
This time, the early signal of Friday's Nonfarm Payrolls (NFP) attracted the DXY bears, as the ADP Employment Change fell to 177K compared to market expectations of 195K and previous readings of 371K (revised from 321K). In a similar vein, the second readings of the US second quarter (Q2) Gross Domestic Product (GDP) Annualised decreased to 2.1% from initial projections of 2.4%, while the GDP Price Index decreased to 2.0% from initial readings of 2.2%. In addition, the initial estimates for Personal Consumption Expenditures (PCE) Prices for the period in question decreased to 2.5% from 2.6% previously.
In addition, China's response to US allegations that "it's risky for businesses" undermined previous expectations for the successful conduct of Sino-American talks in Beijing. However, a number of Chinese banks lowered mortgage rates and bolstered expectations of further stimulus from the Asian powerhouse, thereby repairing the damage to sentiment and weighing on the US Dollar's safe-haven demand, particularly amid dovish Fed worries.
The benchmark US 10-year Treasury bond yields remain under pressure at the lowest levels in three weeks, around 4.11 percent as of press time, whereas Wall Street indices closed in the black despite retreating over the last few hours.
In the future, the Fed's preferable inflation indicator, namely the US Core Personal Consumption Expenditures (PCE) Price Index for August, will be essential for accurately predicting the DXY's movements. The second-tier activity and employment statistics will also be crucial. If these figures continue to be lacklustre, the DXY may reverse its six-week uptrend.
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