US Dollar Strong, Focus on PCE Inflation
The US dollar corrected slightly on Thursday (July 31st) after rallying for five consecutive days. However, the US Dollar Index (DXY) remained strong above 99.50 and approaching the psychological barrier of 100.00, its highest level in two months. The dollar's strength was driven by solid US economic data and hawkish remarks from Federal Reserve Chairman Jerome Powell, which led the market to temper expectations of an imminent interest rate cut.
At its meeting last Wednesday, the Federal Reserve decided to maintain its benchmark interest rate, and Powell emphasized that the central bank remains independent of political pressure, including in addressing the impact of President Donald Trump's tariffs. Powell also stated that the US economy remains strong and inflation remains high, so the Fed needs additional time to evaluate the impact of trade policies on the overall economy.
These remarks have led investors to begin to reduce expectations of an imminent interest rate cut. The probability of a September rate cut, previously estimated at around 63%, has now dropped to 43%. Overall, the market now only expects a 35 basis point interest rate cut this year, lower than previously projected.
The market's primary focus is now on the release of the US PCE Price Index data, the Fed's favorite inflation indicator. Consensus forecasts headline inflation to rise to 2.5% from 2.3%, while Core PCE is predicted to remain stable at 2.7% annually. If this data confirms high inflationary pressures, the US dollar is expected to remain strong in August. (ayu)
Source: Newsmaker.id
