Dollar Recovers Following Solid PCE Inflation Data

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The dollar is attempting a broad recovery in the early US session, partly due to robust inflation statistics and partly due to month-end traffic. The greenback, on the other hand, has had a mixed week. The strongest currencies this week are the Australian dollar and the Swiss Franc, with the latter boosted by robust buying against the Euro.

The yen is currently the weakest currency and will most likely remain such. Both the euro and the Canadian dollar are weak as a result of their respective central banks’ failure to generate sustained buying.

In September, personal income in the United States fell -1.0 percent mom, or USD 216.2 billion, far worse than the expected 0.1 percent mom increase. Personal spending increased by 0.6 percent, or USD 93.4 billion, which was in line with estimates.

Headline PCE inflation increased to 4.4 percent YoY, which was lower than the 4.7 percent YoY forecast. The core PCE price index remained constant at 3.6 percent year over year, falling short of expectations of 3.7 percent year over year.

Higher Rates, Stable Inflation Pushes the US Dollar Index Higher

The US Dollar Index (DXY), which measures the value of the dollar against a basket of major currencies, is accelerating its daily recovery and flirting with the 100-hour SMA near 93.80 on Friday. Based on rising US rates and persistently high US inflation, the index extends its recovery from the 93.30 level and manages to move to the 93.75/80 band by the conclusion of the week.

In reality, yields in the front end and belly of the curve raise the leg to roughly 0.55 percent and 1.62 percent, respectively, while the long end clings to the positive territory around 1.98 percent.

After US inflation numbers tracked by the PCE rose 4.4 percent in a year to September, while the Core PCE rose 3.6 percent and matched August’s reading, the index gained traction. Personal Spending up 0.6 percent month over month, while Personal Income decreased 1.0 percent from the previous month.