• Inflation signals in the US are weakening and the PCE reading is below expectations.
• Consumer sentiment improved, indicating better economic expectations.
• The USD could see additional declines if markets remain persistent from November’s 50 basis point cut.

The US Dollar Index (DXY), which measures the value of the US dollar against a basket of major currencies, remains frail following the release of US personal consumption expenditure (PCE) data for August. Core PCE inflation, the Federal Reserve’s (Fed) preferred measure of inflation, was lower than expected, while core PCE inflation was in line with expectations.

Investors will be closely monitoring incoming data to continue to bet on the Fed’s next decision. Now the attention is focused on September’s labor market data.

Daily market recap: US dollar falls after tender PCE data

• The market is starting to roll back its Fed easing assumptions, and is now pricing in 175 basis points of total monetary easing over the next 12 months, down from 200 basis points earlier this week.
• The main PCE price index increased by 2.2% y/y in August, below market expectations of 2.3%.
• The Core PCE Price Index, excluding food and energy, rose 2.7%, in line with the consensus.
• U.S. consumer confidence improved in September, with the University of Michigan’s consumer sentiment index rising to 70.1 from 66 in August.
• Five-year expected inflation held steady at 3.1%, indicating that consumers do not expect inflation to rise significantly in the coming years.
• Although the mood on the stock exchange has softened slightly, markets are pricing in a 50 basis point interest rate cut at the next meeting in November, which seems to weaken the USD.

DXY Technical Outlook: DXY Signals Bearish Momentum, Resistance at 101.00

Technical analysis indicates that the DXY Index remains vulnerable to further declines as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) continue their downtrend and struggle to gain momentum. The 101.00 level continues to represent forceful resistance, limiting the US dollar’s upside potential.

Support is located at 100.50, 100.30 and 100.00, while resistance is at 101.00, 101.30 and 101.60. The index’s inability to break the level of 101.00 suggests that the downward trend may continue in the near future.