**US Dollar Forecast: Fed Cut Signals Stir Market Ahead of PCE, GBP/USD, and EUR/USD**
*(Credit: James Hyerczyk, FX Empire)*
The US dollar is at the center of financial markets this week as traders react to new signals from the Federal Reserve, economic data releases, and upcoming events that could shape the currency’s near-term direction. Expectations around potential interest rate cuts by the Fed have led to volatility in the major currency pairs, particularly GBP/USD and EUR/USD. With the US Personal Consumption Expenditures (PCE) data on the horizon, market participants are evaluating their positions and outlooks for the world’s most traded currency.
This article will analyze the recent moves in the US dollar, assess the impact of shifting Fed policy expectations, and provide technical and fundamental forecasts for the GBP/USD and EUR/USD pairs.
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## Recent Fed Signals and Market Response
The US dollar was pressured early in the week after Federal Reserve officials reiterated a cautious, “wait-and-see” approach to monetary policy, with a general indication that rate cuts remain on the table for 2024. Despite a robust labor market and sustained consumer strength, inflation indicators remain closely watched. Traders are scrutinizing every word from Fed policymakers for clues as to when the highly anticipated rate cuts might begin.
Key points on recent Fed communication:
– Several Fed officials, including Chair Jerome Powell, have noted that inflation is moving in the right direction but caution that more evidence is needed before lowering rates.
– The Fed’s most recent dot-plot projections suggested one to two cuts by the end of the year, down from earlier expectations.
– Market pricing via CME’s FedWatch tool currently places the odds of a first cut in September.
Despite last week’s hawkish message, dovish undertones became apparent in recent comments, which have limited further upside for the US dollar and pressured Treasury yields.
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## Upcoming Economic Data: Focus on PCE
The market’s key focus in the near term is Friday’s release of the May Core PCE Price Index, the Fed’s preferred inflation gauge. This data point has the potential to either reinforce or challenge the central bank’s position on rate cuts.
Implications of the upcoming PCE release:
– A softer-than-expected PCE print would likely increase odds for an earlier Fed cut, potentially weakening the dollar further.
– Conversely, if inflation remains “stickier” than forecast, it could delay the Fed’s policy pivot, supporting the greenback.
– This data is especially crucial following last week’s mixed bag of inflation and consumption figures, which showed tepid progress on core-price pressures.
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## US Dollar Index (DXY): Technical Overview
The US Dollar Index, which tracks the dollar against a basket of major currencies, reflects the varying sentiment and expectations encompassing the USD.
Technical highlights:
– DXY remains range-bound as traders await decisive economic data and Fed clarity.
– Key resistance sits near 106.30, while support is seen around 104.30.
– A breakout above resistance could signal renewed strength, while a drop below support might trigger accelerated selling.
The dollar’s next directional move will likely hinge on the PCE reading and shifting expectations for the Fed’s schedule.
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## GBP/USD: Fundamentals and Technical Forecast
### Fundamental Backdrop
The British pound is trading near multi-month highs against the US dollar, buoyed by softening US rate expectations and upcoming data points from both the UK and US.
Relevant factors influencing GBP/USD:
– UK inflation recently cooled more than anticipated, diminishing the odds of a near-term rate hike by the Bank of England. However, the BoE has maintained a relatively patient tone, limiting sterling downside.
– Political risk around the UK’s general election lingers, but markets are mostly pricing in a continuation of current economic policy.
– US data, especially the Core PCE release, remains the pivotal driver for GBP/USD in the short term.
### GBP/USD Technical Perspective
The technical landscape for GBP
Read more on GBP/USD trading.