US DOLLAR OUTLOOK: DXY INDEX STRONGER AFTER PCE INFLATION, PERSONAL SPENDING DATA
- US Dollar is trading stronger across the board of major currency pairs early Friday
- USD price action extends to session highs after in-line economic data was released
- PCE inflation accelerated 0.6% month-over-month as personal spending rose 0.5%
US Dollar bulls are in the driver seat Friday morning with the broader DXY Index up 0.4% intraday. This influx of US Dollar strength is being felt primarily against the Aussie and Euro with AUD/USD and EUR/USD down 58-pips and 49-pips respectively at the time of writing. Relatively firmer Treasury yields could be helping fuel US Dollar buying pressure. That said, with economic data crossing the wires just now, the Greenback might struggle to sustain upward momentum on the session. PCE inflation and personal spending data were both reported in-line with market forecasts, which could ultimately disappoint Fed taper debate hawks. Month-end flows could also be exacerbating US Dollar strength.
DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (24 DEC 2020 TO 28 MAY 2021)
While core PCE is the Federal Reserve’s preferred gauge of inflation, and this metric did just accelerate to its highest level since 1992, the central bank has been expecting inflation to turn higher and believes the rise to be ‘largely transitory.’ Not to mention, markets have already digested red-hot CPI data released earlier in the month and have since been met with a barrage of dovish commentary from FOMC officials. As I noted in my weekly US Dollar forecast, however, risk to US Dollar outlook appears skewed to the upside. We now see the DXY Index defending critical technical support and invalidating its bearish descending trendline. A close above the 20-day simple moving average could provide confirmation of this and open up the door for US Dollar bulls to set their sights on the upper Bollinger Band.
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