US Dollar: Upward momentum holds as inflation eases – MUFG
MUFG’s Lee Hardman notes the US Dollar has extended gains, with the Dollar Index reaching the June year-to-date high around 101.80, even as US inflation data softened. Revised core PCE figures show slower underlying price pressures, reducing the likelihood of aggressive Federal Reserve rate hikes.
According to MUFG's Lee Hardman, the US Dollar has continued to rise despite softer US inflation data. The Dollar Index has hit a June year-to-date high around 101.80, while revised core PCE figures indicate decreasing price pressures. The likelihood of aggressive Federal Reserve rate hikes has decreased following these data points.
Despite recent Fed rhetoric, the US Dollar quickly recovered after the softer than expected PCE deflator report for August, signaling a slowdown in inflation pressures. The three-month annualized growth rate has reduced to 2.1%, and the six-month annualized rate has slowed to 2.7% in August. These developments make it less likely that the Fed will increase rates as aggressively as currently anticipated, potentially dropping from three to four hikes in the year ahead.
The probability of consecutive hikes next month before the US mid-term elections has also decreased. The Fed will now await the upcoming NFP report on Friday and the US CPI report for September on 14th October to further assess rate hikes.
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