Dollar Maintains Gains Brushing Off Higher PCE Inflation

As the week draws to a close, the dollar continues to lose ground in the early US session. The markets usually ignore PCE inflation figures, and the Euro similarly ignores CPI. The Canadian Dollar also misses a smaller-than-expected drop in GDP. The pound is leading the recovery, followed by the Australian dollar. In terms of the week, the greenback is the strongest performer, while the New Zealand Dollar is the worst.

Personal income in the United States increased by 0.2% month-on-month in August, or US$35.5B, in line with expectations. Personal spending increased by 0.8% month-on-month, or US$130.5B, higher than the 0.7% month-on-month forecast.

The overall PCE price index rose 4.3% year-on-year, higher than the year-on-year growth of 4.2%, and higher than the expected year-on-year growth of 3.9%. The core PCE price index was flat at 3.6% year-on-year, in line with expectations.

As the market sentiment improved, the US dollar came under pressure. The S&P 500 futures point to a bullish start on Wall Street, an improvement over the situation earlier in the day. The yield on a ten-year US Treasury bill is hovering at 1.50 percent, unchanged.

US Dollar Index Under Pressure

The buck is being weighed down by improving risk sentiment, lackluster activity in US yield, and some profit-taking, forcing the index to drop to the 94.00 area by the end of the week.

Dip buyers appear to have returned to the troubled risk complex on Friday, sponsoring the buck’s corrective move, which was already under pressure after entering overbought territory. After yields on the major US 10-year benchmark note failed to gain any substantial upside traction, the steady performance of US yields remained unsupportive of additional dollar strength.

In the summary, the most-watched ISM manufacturing industry increased to 61.1 in September. Still in the manufacturing sector, Markit’s PMI exceeded the expected 60.7. In addition, the final consumer confidence index is measured by the U-Mich.