Market Analysis

The US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against six major currencies, is retracing its recent gains ahead of the release of the June US Personal Consumption Expenditures (PCE) Price Index. The DXY is trading around 104.30 during the Asian session on Friday.

The downside for the US Dollar may be mitigated by improved US Treasury yields. At the time of writing, the 2-year and 10-year US Treasury bond yields are at 4.35% and 4.24%, respectively. Stronger US economic data has reduced some expectations of a rate cut in September, which could support the Greenback.

According to the CME Group’s FedWatch Tool, there is now an 88.6% chance of a 25-basis point rate cut at the September Federal Reserve meeting, down from 94.0% a week ago.

On Thursday, the US Gross Domestic Product (GDP) for the second quarter (Q2) came in stronger than expected. This follows Wednesday’s US PMI data, which showed faster expansion in private-sector activity for July, underscoring the resilience of US growth despite high interest rates.

The US GDP grew at an annualized rate of 2.8%, seasonally adjusted and inflation-adjusted, an improvement from the previous 1.4% reading and above the 2% forecast. Additionally, the Composite PMI rose to 55.0 from 54.8, its highest level since April 2022, reflecting consistent growth over the past 18 months.

Bank of America suggests that the robust economic growth in the United States allows the Federal Open Market Committee (FOMC) to "afford to wait" before making any changes. The bank asserts that the economy "remains on solid ground" and continues to expect that the Fed will start lowering rates in December.

Paraphrasing text from "FX Street" all rights reserved by the original author.