**US Dollar Forecast: Fed Cut Signals Stir Market Ahead of PCE; GBP/USD and EUR/USD**
*By James Hyerczyk, FXEmpire.com*
The foreign exchange market is bracing for another pivotal moment as signals from the Federal Reserve about future interest rate cuts drive volatility in the US Dollar. Ahead of the release of the Personal Consumption Expenditures (PCE) report, traders are recalibrating expectations, impacting major pairs such as the British Pound/US Dollar (GBP/USD) and Euro/US Dollar (EUR/USD). The financial community is keenly attuned to Fed commentary, US economic data, and technical drivers shaping the next phase for the greenback.
**Fed Policy Shifts: Easing Speculation Gains Ground**
The recent Federal Open Market Committee (FOMC) meeting concluded with the central bank holding rates steady, but key officials signaled a growing openness to rate cuts later this year. Chairman Jerome Powell’s post-meeting comments highlighted persistent disinflationary progress, even as inflation remains above target. Markets quickly priced in a 63% chance of a 25-basis-point cut by September, according to CME’s FedWatch tool.
**Key Takeaways from Fed’s Recent Communication:**
– The Fed left the Federal Funds Rate unchanged at 5.25%-5.50%, reiterating a data-dependent approach.
– Powell acknowledged ongoing inflation risks, but cited improvements in price stability.
– Several FOMC members indicated “meaningful progress” toward the 2% inflation target.
– The central bank’s “dot plot” median forecast still projects one cut in 2024, yet a majority of traders expect at least two cuts before year-end.
**Market Reaction: US Dollar Index (DXY) Under Pressure**
The greenback has retreated from recent highs as dovish rhetoric from the central bank converges with softer US economic data. The US Dollar Index (DXY), tracking the currency against a basket of six rivals, faces renewed selling interest.
– After peaking near 106.00 in April and again in early June, DXY has retraced below the 105.00 level.
– Investor sentiment is shifting in response to falling US Treasury yields and diminishing safe-haven flows.
– Short-term dollar weakness has allowed other major currencies to regain ground, particularly the euro and pound sterling.
**Upcoming US Economic Data: Spotlight on PCE Inflation**
The immediate catalyst for markets is the imminent release of the May Core PCE Price Index, the Fed’s preferred gauge of inflation. This metric is expected to show a monthly rise of 0.1% (vs. 0.2% prior) with the annual core rate easing to 2.6%. Markets will scrutinize these numbers for confirmation that price pressures are cooling, which could reinforce the case for easier monetary policy.
**How Core PCE Data Could Move the Dollar:**
– Softer-than-expected inflation would support prospects for Fed rate cuts, likely pushing the dollar lower.
– Hotter-than-expected data could reignite concerns about sticky inflation, supporting the greenback and threatening a relief rally in rival currencies.
**Technical Picture: DXY, GBP/USD, and EUR/USD**
A technical analysis of key currency pairs provides perspective on how traders may respond to the changing macroeconomic landscape.
**1. US Dollar Index (DXY):**
– The index is now trading in a near-term downtrend after failing to breach 106.00 convincingly on recent rallies.
– Key support lies at 104.19, with a break below opening the route toward 103.80/104.00 and possibly further losses.
– Resistance is seen at 105.15 and 105.50; a sustained move above would be needed to rekindle bullish momentum.
**2. EUR/USD:**
– The euro rebounded sharply from its June lows near 1.0670, climbing above the pivotal 1.0800 level as
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