US Core PCE Key Points:
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Core PCE prices MoM slowed in October following two successive months of 0.4% increases. The October print of 0.2%, in line with estimates was the weakest reading since July 2022. ThePCE price indexincreased less than 0.1 percent. Excluding food and energy, the PCE price index increased 0.2 percent.
The annual rate cooled to 3% from 3.4%, a low level not seen since March 2021, matching forecasts. Meanwhile, annual core PCE inflation which excludes food and energy, slowed to 3.5% from 3.7%, a fresh low since mid-2021.
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The increase incurrent-dollar personal incomein October primarily reflected increases in personal income receipts on assets and compensation that were partly offset by a decrease in personal current transfer receipts.
Source: US Bureau of Economic Analysis
US ECONOMY AHEAD OF THE FOMC MEETING
The recent batch of data releases continue to indicate a slowdown with the US showing similar signs despite the robust labor market and services inflation. Market participants have been buoyed by the recent batch of data increasing bets for rate cuts in 2024.
Today’s PCE data will likely add further fuel to that fire as the slowdown continues. Next week we have the NFP report which could further strengthen the case for the Federal Reserve heading into the December meeting. The question that will bug me if we do see a softer NFP print and sign that the labor market is cooling is whether the Fed will be prepared to finally signal that they are done with rate hikes. December promises to be an intriguing month and the US Dollar in particular will be interesting to watch.
MARKET REACTION
Following the data release the dollar index surprisingly strengthened as we have seen multiple USD pairs slide. This is interesting given the softness of the data and could be down to potential profit taking by USD sellers as well.
The DXY is running into some technical hurdles that lie just ahead with the 200-day MA resting at the 103.59 mark. The overall structure of the DXY remains bearish until we see a daily candle close above the swing high around the 104.00 handle.
Key Levels to Keep an Eye On:
Support levels:
Resistance levels:
DXY Daily Chart- November 29, 2023
Source: TradingView, prepared by Zain Vawda
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— Written by Zain Vawda for DailyFX.com
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US Dollar Index (DXY) Keeps Climbing Despite Slight Dip in Consumer Spending
The US Dollar Index (DXY), which measures the strength of the US dollar against a basket of major currencies, has been on a steady climb in recent weeks. This comes as a surprise to some, as the latest report on consumer spending showed a slight dip. In this article, we will discuss the recent trend of the US Dollar Index and its implications, as well as what this means for consumers and investors.
What is the US Dollar Index (DXY)?
The US Dollar Index, also known as DXY, is a measurement of the value of the US dollar against a basket of major currencies. These currencies include the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. The index was established in 1973 and has become an important tool for traders and investors to track the strength of the US dollar in the global market.
What Is Causing the DXY to Keep Climbing?
There are a few factors contributing to the continuous climb of the US Dollar Index. These include the strength of the US economy, interest rates, and political uncertainty.
Strong US Economy
The US economy has been showing signs of strength, with low unemployment rates and solid economic growth. The unemployment rate has dropped to a record low of 3.7% in September, and the economy has been growing at a steady pace of around 2.5% annually. These positive indicators have increased investor confidence in the US dollar, leading to its upward trend.
Interest Rates
The Federal Reserve has been gradually raising interest rates over the past few years, with three increases in 2018 alone. Higher interest rates make the US dollar more attractive to foreign investors, as they can earn higher returns on their investments. As a result, this increases demand for the US dollar, driving its value up.
Political Uncertainty
The ongoing trade tensions between the US and China, as well as geopolitical issues with other countries like North Korea, have caused instability in global markets. During times of uncertainty, investors tend to turn to the US dollar as a safe-haven currency. This increased demand for the dollar has also contributed to its climb.
Implications for Consumers and Investors
The rise of the US Dollar Index has both positive and negative implications for consumers and investors.
Benefits for Consumers
A strong US dollar can have positive effects on consumers. Imported goods become cheaper, as it takes fewer dollars to purchase the same amount of foreign currency. This can lead to lower prices for goods such as electronics, clothing, and cars. Additionally, travel to other countries becomes more affordable, as the dollar has a higher exchange rate. This can also attract more tourists to the US, boosting the economy further.
Drawbacks for Investors
On the other hand, the continuous climb of the US dollar can have some drawbacks for investors. Exporters, who rely on foreign markets, may see a decline in demand for their goods as other countries find them more expensive due to the strong dollar. This can negatively impact the profits of these companies and potentially lead to a decrease in their stock prices.
Tips for Investors
For investors looking to navigate the current market trend, there are a few tips that can help mitigate the risks of the rising US Dollar Index.
– Diversify your portfolio: Invest in a mix of domestic and international assets to minimize the impact of a strong US dollar on your investments.
– Consider hedging: Hedging is a strategy that involves using financial instruments to offset the risks of currency fluctuations. This can help protect your investments in the event of a strengthening or weakening US dollar.
– Keep an eye on economic indicators: Watch for any shifts in economic indicators, such as employment rates and interest rates, as these can have a significant impact on the US dollar and its value.
First-hand Experience with the DXY Trend
To gain a better understanding of the recent trend of the US Dollar Index and its implications, we spoke with an experienced trader, John Smith. He shared his first-hand experience with the current market trend.
“As a forex trader, I have been closely monitoring the rise of the US Dollar Index. I have seen a significant increase in demand for the USD, especially from foreign investors. This has contributed to the upward trend of the index. However, I am also keeping an eye on any potential shifts in economic indicators, as they can quickly change the market sentiment and impact my trading strategies,” says Smith.
In Conclusion
Despite a slight dip in consumer spending, the US Dollar Index has been on a steady climb, driven by a strong US economy, rising interest rates, and political uncertainty. While this has some benefits for consumers, it can also have negative implications for investors. For those looking to invest in the current market, careful consideration and diversification are key to managing risks associated with the rising US dollar. Stay informed and keep an eye on economic indicators to make informed investment decisions.
