Dollar Index rises to fresh two-month high ahead of key US PCE data

• DXY regains positive traction amid some repositioning ahead of US PCE Price Index
• Recent hawkish comments from Fed officials support the case for a rate cut this year.
• Therefore, crucial inflation data will play a key role in driving the USD in the near term.

The US Dollar (USD) attracts new buyers after the decline inspired by softer US macroeconomic data the previous day and rises to a new two-month high during the Asian session on Friday. The Dollar Index (DXY), which tracks the dollar against a basket of currencies, currently sits just above the 106.00 mark, up 0.15% on the day, as traders await crucial data US inflation rate to get a significant boost.

The Federal Reserve’s (Fed) preferred measure of inflation – the Personal Consumption Expenditure (PCE) Price Index – will be released later during the early North American session at 12:30 GMT. A lower-than-expected PCE deflator or a number that is in line with market expectations will support the case for two rate cuts by the Fed this year, which, in turn, could weaken the USD. Meanwhile, any upside surprise should delay the expected timing of the first Fed cut and trigger a further rise in the dollar.

Looking ahead to key data risk, recent comments from a number of influential FOMC members suggested that the U.S. central bank is in no rush to begin its rate-cutting cycle. Indeed, Fed Governor Michelle Bowman said Thursday that we are not yet at a point to consider a rate cut as upside risks to inflation remain. Additionally, Atlanta Fed President Raphael Bostic noted that inflation remains a primary concern and that the central bank wants to be absolutely sure that inflation will return to 2% before an initial cut.

This overshadowed Thursday’s unimpressive U.S. data, which indicated that growth momentum in the world’s largest economy is moderating. Friday’s release of U.S. data therefore comes as a surprise. PCE The US dollar’s ​​2018-2019 forecast will boost expectations for future Fed policy decisions, which in turn should boost the dollar in the near term. Meanwhile, the first US presidential debate between President Joe Biden and Republican presidential candidate Donald Trump failed to provide any impetus to the USD, which remains on track to end in the green for the fourth consecutive week.