- US Dollar closed out a strong week and opened Monday on a soft note.
- Fed officials offer cautionary advice concerning easing cycles amidst mixed signals in the economic outlook.
- May’s PCE data will be key, as well as GDP revisions.
On Monday, the US Dollar, as portrayed by the Dollar Index (DXY), declined to 105.50, following a series of gains since early May, with investors seeming to capitalize on profits ahead of a tumultuous week.
As for the US economic outlook, a mixed picture prevails with some signs of disinflation. However, Federal Reserve (Fed) officials have chosen a cautious stance and have yet to fully adopt easing cycles. This guarded approach by the Fed continues to create an atmosphere of suspense regarding market expectations.
Daily digest market movers: US Dollar staying course, eyes on crucial data
- On Tuesday, investors will eye the Conference Board confidence report. Headline figures are expected to drop slightly to 100, hinting at tepid consumer spending activity.
- Moving to Thursday, the Gross Domestic Product (GDP) revisions for the year are anticipated to hold steady at 1.3%.
- Friday will signify a pivotal event as the May Personal Consumption Expenditures (PCE), the Fed’s preferred gauge of inflation data is due for release.
- Both headline and core PCE are expected to drop to 2.6% YoY from 2.7% and 2.8%, respectively, in April.
- Despite encouraging progress on inflation, multiple Fed officials, including Chair Powell, recommended that markets maintain composure and not exaggerate the implications of one or two months of favorable data.
- However, the market pins November as the most likely time frame for a cut but is expecting a 70% chance of a cut in September. Forthcoming data will prove to be instrumental in creating market bets.
DXY technical analysis: Positive trajectory maintained despite losses
The technical environment still portrays a positive layout with indicators situated in favorable territory. The Relative Strength Index (RSI) remains above 50, however, it inclines downward. The Moving Average Convergence Divergence (MACD) keeps constructing green bars, implying that bulls seem to be holding their grip.
Consistently, the DXY Index retains its stance above the 20, 100 and 200-day Simple Moving Averages (SMAs). Coupling these conditions with climbing indicators, it seems that the US Dollar (USD) could witness additional gains, mainly if it holds the 20-day SMA.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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 clings to strong gains above 1.1050 as US-China trade war deepens Premium
EUR/USD trades decisively higher on the day above 1.1050 on Wednesday as the US Dollar (USD) stays under persistent selling pressure on growing fears over a recession, as a result of the US trade war with China. Later in the American session, the Federal Reserve will release the minutes of the March policy meeting.
GBP/USD holds above 1.2800 on broad USD weakness
GBP/USD stays in positive territory above 1.2800 in the American session on Wednesday. After China's decision to respond to the US tariffs by imposing additional 84% tariffs on US goods, the US Dollar remains under pressure and helps the pair hold its ground ahead of FOMC Minutes.
Gold extends rally to $3,050 area as safe-haven flows dominate markets
Gold preserves its bullish momentum and trades near $3,050 in the second half of the day. Further escalation in the trade conflict between the US and China force markets to remain risk-averse midweek, allowing the precious metal to capitalize on safe-haven flows.
Top 3 gainers NEO, Plume and Story: NEO surges despite Trump's tariff firestorm as investors succumb to extreme fear
Cryptocurrencies are enduring progressive market carnage from the US President Donald Trump administration's incessant tariffs on its trade partners, with some selected altcoins like NEO, Plume and Story (IP) leading the bullish brigade on Wednesday.
Tariff rollercoaster continues as China slapped with 104% levies
The reaction in currencies has not been as predictable. The clear winners so far remain the safe-haven Japanese yen and Swiss franc, no surprises there, while the euro has also emerged as a quasi-safe-haven given its high liquid status.
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.