US Dollar Strength to Persist with US PCE to Show Sticky Inflation

US Dollar Talking Points

The US Dollar Index (DXY) clears the June 2002 high (112.04) as the Federal Reserve implements another 75bp rate hike, and the update to the US Personal Consumption Expenditure (PCE) Price Index may keep the Greenback afloat as the report is anticipated to show sticky inflation.

Fundamental Forecast for US Dollar: Bullish

DXY climbs to a fresh yearly high (112.89) as the Federal Open Market Committee (FOMC) retains its approach its combating inflation, and it seems as though the central bank will carry out its hiking-cycle throughout the remainder of the year as Chairman Jerome Powell and Co. pledges to “keep at it until we are confident the job is done.”

Looking ahead, the update to the core US PCE, the Fed’s preferred gauge for inflation, may keep the central bank on its current course as the index is expected to increase to 4.7% in August from 4.6% per annum the month prior, and evidence of sticky inflation may lead to a further appreciation in the US Dollar as it boosts speculation for another 75bp rate hike at the next FOMC rate decision on November 2.

Until then, data prints coming out of the US may sway the Greenback as the update to the Summary of Economic Projections (SEP) show a steeper path for the Fed Funds rate, and the Dollar may continue to outperform against its major counterparts as the FOMC pursues a restrictive policy.

With that said, an uptick in the core US PCE may fuel the recent advance in the US Dollar as it encourages the Fed to retain its approach in combating inflation, and DXY may continue to trade to fresh yearly highs over the coming days as it carves a series of higher highs and lows.

--- Written by David Song, Currency Strategist

Follow me on Twitter at DavidJSong