US Dollar Continues to Rise Ahead of PCE

The US Dollar DXY sees restricted gains as falling US Treasury yields could pose a challenge during the session.
Political changes in the US continue to have an impact and PCE will be in focus next week.
Federal Reserve officials are maintaining their data-driven stance, keeping markets on edge.

The DXY-measured U.S. dollar posted modest gains on Tuesday, although falling U.S. Treasury yields are likely to pose a significant challenge for the rest of the session. This comes amid expected changes in financial markets due to recent clues about former President Donald Trump’s post-Biden economic plans. We continue to focus on top-tier data due this week.

Given the signs of disinflation in the U.S., markets are sanguine about potential rate adjustments in September. Even with these changes on the horizon, Federal Reserve officials reiterated their cautious approach to deciding on rate changes, keeping markets on their toes. Key indicators to watch during the week include personal consumption expenditures (PCE) and Q2 gross domestic product (GDP) revisions.

Daily Market Factors Review: US Dollar Up Slightly, Focus on PCE

Mid-market housing data came in below expectations, with existing home sales posting a bigger-than-expected month-on-month decline in June, but that didn’t significantly affect the US dollar.
The frail Richmond Fed manufacturing index did not stop bulls from pushing the US dollar higher.
On Friday, the forecasts assumed that core PCE would enhance by 0.16% MoM, and spending would enhance by 0.3% MoM.
The CME FedWatch tool indicates a high probability of an interest rate cut in September, although weekly US dollar dynamics are expected to be determined by GDP and PCE data.
Yields on US Treasury bonds have fallen, with the 2.5- and 10-year bond yields at 4.51%, 4.16% and 4.23%, respectively.

DXY Technical Outlook: Slight Uptrend, But Signs of Downside Still Remain

Despite the current rally above the 200-day uncomplicated moving average (SMA), the DXY index still has a neutral to bearish outlook. Bearish signals are resurfacing as the DXY index indicators are still largely in negative territory, while an impending bearish crossover between the 20- and 100-day SMAs is evident around 104.80. If successful, this could provide sellers with significant momentum.