USD Index retreats from daily highs near 102.50 post-PCE

The greenback, in terms of the USD Index (DXY), gives away part of the earlier advance to daily highs in the 102.50/55 band.

USD Index trims gains post-PCE

Following the earlier move to daily peaks near 102.50, the index now comes under some selling pressure after the downtrend in US inflation figures was somewhat “confirmed” by the PCE results.

Indeed, prices tracked by the headline PCE rose 5.0% in the year to February and 4.6% when it comes to the Core PCE. Further data releases showed Personal Income rose 0.3% MoM and Personal Spending increased 0.2% vs. the previous month.

Later in the session, the final readings of the Michigan Consumer Sentiment for the month of March are due.

From the Fed’s backyard, Boston Fed S.Collins was again on the wires after suggesting that other sectors should respond to the tighter monetary conditions in the next quarters at the time when she noted that data indicating a slowing economy is welcomed by the Fed.

In the wake of the PCE release, the probability of a rate hike by the Fed at the May event is slightly favoured vs. a “no hike” according to CME Group’s FedWatch Tool.

What to look for around USD

The index rebounds markedly on the back of some hawkish comments from Fed rate setters as of late, although the persistent disinflation – this time via lower PCE figures – could lend support to a potential pivot in May and thus keep the buck under pressure.

So far, speculation of a potential impasse by the Fed in the short-term horizon should keep weighing on the dollar, although the resilience of the US economy and the hawkish narrative from Fed speakers are all seen playing against that view for the time being.

Key events in the US this week: PCE, Personal Income/Spending, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is advancing 0.21% at 102.38 and faces the next resistance level at 103.36 (55-day SMA) followed by 104.05 (100-day SMA) and then 105.88 (2023 high March 8). On the other hand, the breach of 101.93 (monthly low March 23) would open the door to 100.82 (2023 low February 2) and finally 100.00 (psychological level).