Key Points
- The Dollar Index eased 0.1% to 98.37 after a 0.6% surge, on track for a 0.8% weekly gain, the strongest since early August.
- US Q2 GDP revised up to 3.8% from 3.3%, while Fed cut odds for 50 bps by December slipped to 60% from 82% a week ago.
The Dollar Index (USDX) consolidated around 98.37 on Friday, trimming a 0.6% gain in the prior session but still eyeing a 0.8% advance for the week. That would mark its steepest rise since the week ending 1 August.
The rebound follows a run of stronger-than-expected economic data that has dampened the urgency for deeper Federal Reserve cuts this year.
The Commerce Department revised US GDP growth for the second quarter to 3.8%, up from 3.3%, well above economists’ expectations of no change. Stronger jobless claims supported this alongside durable goods orders and wholesale inventories.
As a result, traders have scaled back bets on larger Fed moves. CME’s FedWatch Tool now shows a 60% probability of a 50 basis point cut by December, down sharply from 82% one week earlier. With growth and labour resilience intact, the case for deep easing looks less convincing.
Inflation in Focus
Markets now turn to the release of the PCE price index, the Fed’s preferred gauge of inflation. Consensus expects a 0.3% monthly rise for August and a 2.7% annual increase. Core measures are anticipated closer to 2.9% year-on-year.
A firmer outcome would underline the Fed’s cautious stance, keeping pressure on rate-cut bets. Conversely, a soft print could revive expectations for larger policy adjustments before year-end.
Technical Analysis
The US Dollar Index (USDX) is trading at 98.026, down 0.08% on the day, showing continued struggle to build momentum after its recent bounce from 95.819, the lowest level since March.
The broader trend remains bearish, with the index still capped under the 100.00 psychological resistance and well below the March peak of 107.57.
Price action has been consolidating in a tight band between 96.00 and 99.00, reflecting indecision as traders weigh Fed policy expectations against global demand for the dollar.
Moving averages (5, 10, 30) suggest caution: short-term lines are beginning to flatten, hinting at consolidation, while the longer-term downtrend remains intact.
The MACD has crossed above the signal line, which could support further short-term recovery attempts, but the histogram shows limited strength.
For the immediate outlook, 98.50–99.00 serves as near-term resistance, while 97.50 and 96.00 remain important supports. A decisive break below 96.00 could reopen the path to March lows, while a close above 99.00 may invite a stronger corrective rally.
Cautious Forecast
If August PCE inflation confirms the 0.3% monthly and 2.7% annual projections, the Dollar Index is likely to trade in a higher range, with scope to retest 99.20. Any upside surprise in inflation would further reduce cut expectations and extend the rally.
However, should inflation come in softer than forecast, the USDX may retrace toward 97.40 before buyers re-emerge, leaving the broader uptrend intact as long as 96.00 holds.
