Investors Await FOMC Minutes, Core PCE

The Dollar Index (DXY) briefly traded above 108 on Friday, driven primarily by euro weakness rather than dollar strength. As we head into a short week due to the US Thanksgiving holiday, market participants are focused on key data releases, including the Federal Reserve’s November FOMC minutes and the core Personal Consumption Expenditures (PCE) deflator for October.

Dollar Index Performance

The DXY can be expected to consolidate in a 106.50-107.50 range this week. The euro, which has the largest weight in the DXY at 58%, has been a significant factor in recent movements. The dollar trend appears more settled, and with Scott Bessent confirmed as the next US Treasury Secretary, it is unlikely that President-elect Donald Trump will push for a weak dollar policy.

Key Data Releases

The highlights of the US data calendar this week include Tuesday’s release of the Federal Reserve’s November FOMC minutes and Wednesday’s release of the core PCE deflator for October. The minutes from the November 7 meeting, where the Fed cut rates by 25 basis points, are expected to provide insights into the Committee’s views on future rate cuts. The core PCE deflator is anticipated to be a little sticky at 0.3% month-on-month, keeping the market guessing whether the Fed will cut rates in December.

November FOMC Meeting Minutes

The minutes from the Fed’s November 6-7 meeting will be released on Wednesday at 19:00 GMT. During this meeting, the Fed further eased monetary policy with a 25-basis-point rate cut, following a surprising jumbo rate reduction in September. Federal Reserve Chair Jerome Powell avoided providing clear signals that the central bank might pause its rate-cutting cycle in the near term. Policymakers noted that the labor market had “generally eased,” while inflation appeared to be progressing toward the Fed’s 2% target. Powell reiterated that the upcoming election would not influence the Fed’s near-term policy decisions.

Economic Indicators and Market Sentiment

Since the early November rate decision, US economic data has remained robust, signaling solid fundamentals alongside an uptick in October’s inflation, as tracked by the Consumer Price Index (CPI). Powell’s recent comments made it clear that the Fed is not in a rush to cut rates further. The CME Group’s FedWatch Tool estimates the probability of a quarter-point rate cut at the December 18 meeting at nearly 60%, down from around 75% a month ago.

Potential Impact on the US Dollar

The release of the FOMC minutes could impact the US Dollar by providing more clarity on the Fed’s future rate-cutting plans. While another 25-basis-point rate cut seems like the logical next step, investors should not dismiss the possibility of a hold—or even a hawkish hold. The core PCE deflator’s performance will also play a crucial role in shaping market expectations.

Market Reactions to Trump’s Treasury Pick

The “Red Sweep” accompanying Donald Trump’s election victory in November has revived expectations of US tariffs, looser fiscal policy, and corporate deregulation, all of which could heighten inflationary pressures sooner rather than later. This scenario could challenge the continuation of the Fed’s easing cycle, potentially forcing the central bank to pause or even halt rate cuts. Could rate hikes be back on the table? Senior Analyst Pablo Piovano at FXStreet notes that “a glance at the technicals on the US Dollar Index (DXY) shows immediate resistance at the 2024 peak of 108.07 (November 22). Surpassing this level should encounter little resistance until the November 2022 high of 113.14 (November 3).” On the flip side, occasional bearish moves should find the next support at the critical 200-day SMA at 103.98.

As the market navigates through a shortened week, the focus remains on the Federal Reserve’s November FOMC minutes and the core PCE deflator for October. These releases will provide critical insights into the Fed’s monetary policy direction and its potential impact on the US Dollar. With Scott Bessent’s confirmation as the next US Treasury Secretary and a more settled dollar trend, the DXY is expected to consolidate within a defined range, reflecting cautious optimism in the markets. Investors will closely monitor these developments to make informed decisions as the year draws to a close.