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US Dollar Surges but Faces Test as Inflation Concerns Persist
Confirmed
In Short: The US Dollar surged last week, reaching 17-month highs, driven by a mix of strong economic data and weaker-than-expected job growth.
The US Dollar surged last week, reaching 17-month highs, driven by a mix of strong economic data and weaker-than-expected job growth.
According to FXStreet, the USD's rally was bolstered by a mixed performance in US Treasury yields, with gains at the belly and long end of the curve offset by losses at the short end.
The latest batch of macroeconomic data showed that growth continues, the labor market remains healthy, and inflation is stable, with the Personal Consumption Expenditures (PCE) Price Index holding at 3.4% in August.
However, the weak jobs data and inflation reading have crashed expectations of a rate hike in the Federal Reserve's (Fed) October meeting to 23.8%, down from above 70% a few days earlier, according to the CME FedWatch Tool.
Minneapolis Fed President Neel Kashkari emphasized that U.S. inflation remains too high across multiple sectors of the economy, supporting the Fed's prior rate hike to 3.75%-4.00%.
Gold price forecasts remain positive, with UBS projecting a recovery to $4,600 by December, despite hawkish comments from Fed officials capping upside potential.
The AUD/USD has shown a downward trend, influenced by weaker economic data from Australia and concerns over inflation.
The US Dollar Index (DXY) surpassed the 102.00 barrier, gaining more than 3% in September.
The core measure of inflation, which strips out food and energy, rose 0.3% on the month, above the 0.2% forecast, although the annual core rate eased to 2.4% from 2.5%.
If the price breaks below the support levels, further declines could be seen.
Gold has recovered towards $4,200, but UBS’s December forecast of $4,600 still requires a gain of almost 10% from current levels.
What this adds
The US Dollar's rally faces a test as inflation concerns remain prominent, despite strong economic data.
The AUD/USD has shown a downward trend, influenced by weaker economic data from Australia and concerns over inflation.
The US Dollar Index (DXY) surpassed the 102.00 barrier, gaining more than 3% in September.
What's confirmed
- The USD surged after a batch of first-tier macroeconomic data showed that growth continues, the labor market is pretty healthy, and inflation is stable.
- The weekly rally and Friday’s pullback could be explained by government bond yields ' behavior.
- Also, the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve (Fed) favorite inflation gauge, came in softer than anticipated in August, holding at 3.4%, while the July reading was downwardly revised from 3.7% to 3.4%.
- Markets overwhelmingly expect a quarter-point hike, but the Fed’s projections and the bond market’s response may matter more to originators The Federal Reserve is widely expected to raise interest rates Wednesday after hotter August inflation abruptly reversed economists’ forecasts.
- The CPI figures indicate that inflation is rising, which could lead to tighter monetary policy from the RBA.
- Looking ahead to the week, the forecasted closing price is 0.6900, with a range of 0.6880 to 0.6920.
- AUD/USD has recently shown a downward trend, influenced by weaker economic data from Australia and concerns over inflation.
- Minneapolis Fed President Neel Kashkari said over the weekend that U.S. inflation remains too high across multiple sectors of the economy, expressing support for the Fed's prior rate hike to 3.75%-4.00%.
- Earlier, Fed Chair Warsh also emphasized that inflation remains above target, prompting the market to continue pricing in the possibility of further rate hikes in the coming months.
- Latest gold price forecasts, XAU/USD news and analysis covering Federal Reserve policy, real yields, the US Dollar, central-bank demand and geopolitical risk.
- Higher US interest rates complicate the gold price forecast, but UBS still projects a recovery to $4,600 by December.
- The gold price’s recovery alongside rising inflation expectations has SEB watching for a shift away from the US Dollar and towards hard assets.
What's still developing
- GDP rose 0.2% in the second quarter, beating forecasts and giving the RBNZ a little more breathing room after its latest rate hike.
- Nearly 53% of economists who provided longer-term forecasts expect at least one additional increase by the end of March, while financial markets are pricing in several increases through July 2027.
- Overall, hawkish comments from Fed officials continue to cap gold's upside, but expectations of U.S.-Iran negotiations are driving oil prices lower, easing pressure from inflation and subsequent rate hikes, thus supporting gold.
- Follow gold price forecasts, XAU/USD news and market analysis from Exchange Rates UK.
- Gold is influenced by real interest rates, Federal Reserve policy, the US Dollar, inflation expectations, central-bank and investor demand, geopolitical risk and changes in global liquidity.
- For related drivers, see our Federal Reserve news, US Dollar analysis and broader commodities coverage.
- The pair erased that move within hours as Yen strength overwhelmed the Dollar's knee-jerk bounce, leaving it back toward the lower end of its recent range following this week's sharp slide from the mid-155s.
- The US Dollar (USD) climbed at first, helped by the firmer monthly core figure, but the move lost momentum quickly against the Japanese Yen (JPY), which has been among the strongest currencies this week.
- Moves have been modest but clearly visible in Asian trade, with the yen the session's underperformer after Japan August inflation data undershot forecasts across the board, and the Australian dollar the stronger performer following Governor Bullock's comments to a parliamentary committee.
- It has been an active early session in Asia, with the yen the weaker performer and the Australian dollar the stronger one, though neither move has been dramatic.
- Japan's national consumer price data for August, released a few minutes into the session, undershot forecasts across every measure the market watches.