- US Dollar DXY struggling to rebound amid mixed PCE figures and anticipations of Fed cuts.
- The possibility of a rate decrease by the Fed in September remains, though somewhat toned down.
- All eyes are now on next week’s FOMC decision.
On Friday, the US Dollar, as depicted by the DXY, displayed some resilience despite encountering daily losses post the release of mixed Personal Consumption Expenditures (PCE) data. The market continues to wrestle with the prospect of a rate cut in September by the Federal Reserve (Fed), even though expectations have somewhat softened.
Signs of disinflation in the US economy have begun to surface, thereby boosting confidence in a potential rate cut come September. Yet, Federal Reserve officials remain cautious and data-dependant so next week’s meeting will be crucial for the short-term market’s dynamics.
Daily digest market movers: US Dollar on shaky ground with mixed PCE data
- The annual core PCE, excluding volatile food and energy items, revealed a steady growth of 2.6%, contradicting economists' prediction of deceleration at 2.5%.
- The monthly core PCE inflation, the Fed's favored inflation tool, rose beyond the former and expected data of 0.1% to reach 0.2%.
- Though this higher growth pace is considered consistent, it falls short of dampening expectations that the Federal Reserve will roll out reduced interest rates by the September meeting, projecting two cuts this year.
- Next week’s Federal Open Market Committee (FOMC) will provide markets with additional guidance on the bank’s stance.
DXY Technical outlook: Bearish tendencies persist despite the struggle to uphold
Even though the DXY Index is battling to hold onto the 200-day Simple Moving Average (SMA), bearish signs continue to persist. The direction of the index thus now largely depends on whether the DXY can maintain the mentioned SMA but whats likely is that the index might side-ways trade in the next sessions as indicators including the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain in negative zone but flattened.
Supports are noted at 104.15 and 104.00 levels, while resistances are observed at 104.30 and 104.50 levels.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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