The US Dollar Index (DXY) is certainly getting the pressure as it floats near a multi-week low. At the moment of writing, it is around 99.00 on the tape. Traders are anxiously awaiting the release of the US Personal Consumption Expenditure (PCE) Price Index. We’re excited for it, which is why we’re hosting it later today. The DXY measures the performance of the US dollar against a basket of six other major currencies. As of Friday, in the Asian trading session, it indeed has a small bearish bias.
The DXY enjoyed an overnight boost from its low point since late October. It was unable to build on that momentum. As of this writing, the index was down by just under 0.10% on the day. This sharp plunge underscores re-upped fears over the Fed’s dovish stance. All of these expectations are exerting significant downward pressure on the US dollar. They blotted out impressive labor market casts that would typically bolster the currency.
So the upcoming PCE data will be key. Beyond that it will be a rare and valuable window into inflation trends across the continental US. Analysts and traders are already parsing the details of the September PCE Price Index. They want important clues about the Federal Reserve’s ultimate itinerary when it starts to cut interest rates. Traders are antsy for more definitive signals from the inflation figures. This fearfulness has resulted in them taking a wait and see approach and shying away from putting on any new directional wagers.
Even as the DXY dances through these turbulent waters, its story against the other major currencies is impressive. The heat map indicates that the US dollar has experienced varying degrees of decline against several key currencies: it has fallen 0.51% against the euro (EUR), 0.75% against the British pound (GBP), 0.93% against the Japanese yen (JPY), 0.57% against the Canadian dollar (CAD), 1.35% against the Australian dollar (AUD), 0.79% against the New Zealand dollar (NZD), and 0.24% against the Swiss franc (CHF).
Beyond these percentage shifts, deeper market vibes are apparent. In doing so, they illustrate the ways in which global economic forces and Fed policy are warping currency valuations. All market participants – corporate treasurers, banks and investors – are acutely focused on the Greenback’s performance. They understand that it will be fundamentally important in shaping its next strategic move. A weaker dollar would tell you the opposite – that the Fed will be more dovish for longer. At the same time, positive surprises from the PCE data could paint a different picture.
Analysts advise that everyone across the board—including traders—should be on watch with the arrival of the next PCE release. Just as importantly, they should pay attention to how the market reacts afterward. The Federal Reserve’s stance on interest rates will be critical in shaping currency trends, and thus, today’s PCE release could prove to be a watershed moment for the dollar.