US Dollar Index hovers near fresh 25-month highs, 108.50, PCE Inflation awaited

• The US Dollar Index marked 108.49, the highest level not seen since November 2022, in the previous session.
• The US Dollar strengthened as the Fed emphasized adopting caution regarding policy outlook.
• US Gross Domestic Product Annualized reported a 3.1% growth rate in Q3, exceeding the expected 2.8% increase.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major currencies, maintains its position near 108.50, the highest level not seen since November 2022. This follows the Federal Reserve's (Fed) hawkish 25 basis point (bps) rate cut on Wednesday, which lowered its benchmark lending rate to a two-year low of 4.25%-4.50%.

The US Dollar strengthened as US Treasury bond yields surged by more than 2.50% on Wednesday, following the Fed's emphasis on exercising caution regarding additional rate cuts. Fed Chair Jerome Powell explained that the central bank would be wary of further cuts, as inflation is expected to remain persistently above the 2% target. As of writing, the 2-year and 10-year yields stand at 4.30% and 4.56%, respectively.

The Fed's monetary policy statement indicated that economic activity remained robust while noting that labor market conditions had softened. The Fed's Summary of Economic Projections (SEP), or "dot-plot," forecasted only two rate cuts in 2025, a reduction from the four cuts projected in September.

In the United States (US), data showed on Thursday that the US Gross Domestic Product (GDP) Annualized reported a 3.1% growth rate in the third quarter, surpassing both market expectations and the previous reading of 2.8%. Additionally, Initial Jobless Claims dropped to 220,000 for the week ending December 13, down from 242,000 in the prior week and below the market forecast of 230,000.

Traders will likely observe key economic figures from the United States including Personal Consumption Expenditures (PCE) and Michigan Consumer Sentiment Index data, scheduled to be released by the US Bureau of Economic Analysis on Friday.