The Dollar Takes a Break After a Week’s Rally

The US dollar gained ground last week but stumbled at the start of this one. The Federal Reserve is urging caution on loosening its grip on interest rates too soon.

Mixed economic data, like spending figures and revised GDP numbers, are on investors’ radar. On Monday, the US dollar, according to the Dollar Index (DXY) reading, fell to 105.50, after a series of gains achieved since early May, as investors appear to be taking advantage of profit-taking ahead of a turbulent week.

As for the economic outlook for the United States, a picture reflects uncertainty amid some signs of declining inflation. However, Fed officials have chosen a dovish stance and have not yet fully embraced easing and this cautious stance by Fed officials continues to create an atmosphere of suspense regarding the market outlook.

On Tuesday, investors will await the Confidence Report from the Conference Board. The headline numbers are expected to fall slightly to 100, indicating tepid consumer spending activity, and moving into Thursday, GDP revisions for the year are expected to remain steady at 1.3%.

Friday will see a pivotal event as May’s Personal Consumption Expenditures (PCE), the Fed’s preferred measure of inflation data, is scheduled to be released and the headline and core PCE rates are expected to fall to 2.6% y/y from 2.7% and 2.8% respectively in April.

Despite the encouraging progress on inflation, several Fed officials, including Chairman Powell, recommended that markets maintain their composure and not overstate the implications of a month or two of positive data.

While inflation might be cooling slightly, the Fed isn’t ready to celebrate. They want to see a consistent trend before making any moves.

Despite the mixed signals, some investors still expect a rate cut by fall. Technically, the dollar’s outlook remains positive, but recent gains are on hold as everyone waits for new data and the Fed’s next steps.