US Dollar pressured after Michigan expectations, PCE data

The US Dollar is facing increasing selling pressure as investors are pricing in interest-rate cuts for early 2024.

Markets are opting to ignore remarks and warnings from several US Federal Reserve officials, who are trying to play down expectations of upcoming cuts. As US equities have a Christmas rally, US bond yields have plunged, leading the spread gap between the US Dollar and foreign currencies to shrink substantially.

Personal Consumption Expenditures (PCE) were released, showing a rise in Core PCE from 3.4% to 3.2%, while Yearly Headline PCE headed lower from 2.9% to 2.6%. Durable Goods Orders for November rose to 5.4%, and Personal Income increased from 0.3% to 0.4%. Personal Spending will tick up, with revised numbers at 0.2% and 0.1%.

The University of Michigan Consumer Sentiment Index increased from 69.4 to 69.7, with inflation expectations rising from 2.8% to 2.9%, still below 3%. New Home Sales for November are expected to jump from 0.679 million to 0.685 million, and Asian markets closed near flat, except for the Hang Seng index, which closed down over 1.6% after the Chinese government released new measures to crack down on the gaming industry.

Markets are pricing in an 83.5% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting, with around 14.5% expecting the first cut already to take place. The benchmark 10-year US Treasury Note trades near 3.88%, the lowest level since summer.

The US Dollar Index has had one of its worst weeks in the last quarter, with trading desks cleaning up their balance sheets and several US Dollar bulls unwounded their positions in the Greenback. Any upbeat surprise in data that could contradict rate cut bets or geopolitical events that trigger US Dollar inflow could still make the DXY head higher.