The U.S. Dollar Index (DXY) is set for its first monthly decline in 2024 amid gyrating rate-cut bets and the latest GDP numbers. The next trajectory for the index could be decided by the upcoming PCE (personal consumption expenditures) price index numbers.
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U.S. Dollar Slump Comes amid Rate Cut Hopes
The slump in the U.S. dollar comes amid hopes of a rate cut from the Fed later this year, tepid economic data in the U.S., and strength in the European economy. Over the past few months, traders gradually scaled back their rate-cut bets from H1 2024 to H2 2024. While this dynamic lent strength to the dollar, expectations that the Fed may not resort to further rate hikes have been weighing on the dollar in recent weeks.
Meanwhile, the Euro (FX:USD-EUR) has displayed strength against the dollar despite a fairly certain rate cut from the European Central Bank (ECB) next week. The upcoming inflation reading in the eurozone is also likely to play a key role in deciding the Euro’s next path.
The revised GDP numbers in the U.S. indicated a growth of 1.3% for the first quarter, lowering the case for a rate hike. The weak data print came as a result of weak consumer spending. This weakness also resulted in the USD giving up some of its recent gains against the Japanese Yen (FX:USD-JPY).
Is USD Expected to Go Up or Down?
For now, comments from Minneapolis Fed President Neel Kashkari suggesting that a rate cut scenario could be delayed until inflation improves are helping the dollar from declining further. Over the coming sessions, a tepid PCE print could heavily weigh on the dollar. Conversely, a strong PCE print could help the dollar regain its footing as it would indicate a continuation of the Fed’s hawkish stance.
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