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The U.S. dollar pared recent gains ahead of key economic data releases, including the PCE price index, the second estimate of third-quarter GDP growth, and initial jobless claims.
These reports could significantly impact the dollar’s performance in the near term, with durable goods orders also being closely watched for further insights into the broader health of the U.S. economy.
As inflation continues to exceed the Fed’s 2% target, policymakers have adopted a more cautious stance, signaling a preference for a slower pace of rate adjustments in the latest FOMC meeting minutes.
Traders are pricing in a 65% probability of a 25 basis point (bps) rate cut in December. If the PCE data comes in lower than expected, shifts in expectations regarding the Fed’s easing pace could temper the dollar’s bullish momentum.
On the other hand, developments like Trump’s announcement of additional tariffs on China, Mexico, and Canada, along with aggressive trade policies, could reignite inflationary pressures. With the Fed indicating a preference for a more gradual pace of easing, market expectations for the Fed to hold interest rates at its January 2025 meeting could keep the dollar elevated.
Further economic reports could also introduce more volatility to the dollar, particularly if signs of an economic slowdown or rising unemployment claims emerge.
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