- US Dollar saw a slight dip at the end of the week, clearing daily gains.
- US Dollar finds support amid high US Treasury yields.
- May’s PCE data showed an unexpected deceleration in US inflation.
The end of the week saw the US Dollar, as benchmarked by the DXY Index, settle near 105.80, after hitting a high of 106.13 earlier in the session. This follows the release of Personal Consumption Expenditures (PCE) data, but the losses are limited by the high US Treasury yields.
The American economy remains resilient with slight inflationary signals, which is just enough to keep the Federal Reserve (Fed) from completely embracing the easing cycle.
Daily digest market movers: US Dollar dips on weak PCE data
- On Friday, May’s Personal Consumption Expenditures (PCE) showed headline inflation soften to 2.6% YoY, down from the previous month’s 2.7%.
- Core PCE (which excludes volatile food and energy prices) has also experienced a decline to 2.6% from the previous 2.8% in April.
- US Treasury yields provide resilience to the Dollar, with the 2, 5 and 10-year rates at 4.71%, 4.32%, and 4.33%, respectively.
- Probability of a Fed rate cut in September marginally increased to 66%, up from the pre-release expectation of 64% as per CME Fedwatch Tool.
- Focus will now shift to labor market data from June.
DXY technical outlook: Positive momentum persists, index eyeing higher grounds
Despite the recent data fluctuations, the technical outlook remains positive, with indicators in green but losing some steam. The Relative Strength Index (RSI) continues to be above 50 but appears to point downward, indicating a slight pause in the bullish momentum. The green bars are still developing in the Moving Average Convergence Divergence (MACD), further facilitating the positive view but at a slower pace.
The DXY Index holds above the 20, 100 and 200-day Simple Moving Averages (SMAs), confirming its ongoing positive stance. Despite the Index’s steadiness at the highs seen since mid-May, there is room for further rise, suggesting the DXY is poised for further upside with the 106.50 zone next in sight. Conversely, 105.50 and 105.00 will be areas to observe in case of a drawdown.
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD trims losses and approaches 1.0800 after US data
The US Dollar renewed its bullish momentum on Tuesday, pressuring EUR/USD and keeping the pair under the critical 1.0800 threshold following the release of US ISM Manufacturing PMI and JOLTS readings.
GBP/USD meets support around 1.2880, USD remains strong
After bottoming out around the 1.2880 region, GBP/USD now manages to attempt a bounce and flirt with the 1.2900 zone in the wake of weaker-than-expected US data releases.
Gold nears $3,100 as fears receded
Gold is easing from its fresh record high near $3,150 but remains well supported above the $3,100 mark. A generalised pullback in US yields is underpinning the yellow metal, as traders stay on the sidelines awaiting clarity on upcoming US tariff announcements.
Dogecoin bulls defend lifeline support as risk-off sentiment continues
Dogecoin trades at $0.1731 during early American hours on Tuesday after recovering from Monday’s support at $0.16. The leading meme coin faced negative headwinds early in the week as investors reacted to comments by Tesla CEO Elon Musk, who heads the special Department of Government Efficiency (D.O.G.E.) in the US.
Is the US economy headed for a recession?
Leading economists say a recession is more likely than originally expected. With new tariffs set to be launched on April 2, investors and economists are growing more concerned about an economic slowdown or recession.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.