US Dollar experiences loss following PCE data

The US Dollar Index (DXY) is experiencing losses due to weak Personal Consumption Expenditures data from December, which gave hope for earlier rate cuts.

Market expectations suggest a possible Fed rate cut in March, but if economic growth sustains itself, a March cut seems unlikely. As a result, bets have shifted towards the easing cycle beginning in May.

If the US shows resilience and markets delay expectations of cuts, the downside is limited for the short term. The December Core PCE Price Index (YoY), the Fed’s preferred inflation gauge, came in at 2.9%, slightly under the consensus of 3%. The headline index remained constant at 2.6%.

The 2-year, 5-year and 10-year US bond yields are on the rise, currently trading at 4.35%, 4.04% and 4.14%, respectively.

The CME FedWatch Tool indicates that no changes in hike rates are expected for the January meeting, while markets are hinting at rate cuts in March and May 2024 with higher odds for the easing cycle to start in the latter.

The fact that the index is still below the 100 and 200-day SMAs, however, indicates that bears are maintaining a bullish grip on the broader context. The sellers seem to be dominating the narrative in the longer run, with the bulls struggling to gain ground.

Support Levels: 103.30, 103.00, 102.80, 102.60 (20-day SMA).
Resistance Levels: 103.50 (200-day SMA), 103.70, 103.90.