US Dollar eases amid profit-taking and year-end positioning

• DXY slips as profit-taking sets in, falling toward 107.80.
• Traders parse disinflationary PCE data after Fed’s hawkish cut on Wednesday.
• The soft inflation readings might not alter the ‘wait and see’ posture of the Fed.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, took a hit after soft Personal Consumption Expenditures (PCE) data was released during the European session. Markets are also assessing political woes in the US, which soured market sentiment.

Daily digest market movers: US Dollar reacts to disinflationary PCE, shutdown risks, and Fed stance

• Risks of a US government shutdown have risen as House Republicans failed to pass a funding deal. Although a brief shutdown may have limited market impact, negotiations remain in focus.
• Longer-term Treasury yields continue to climb, with the 10-year yield near 4.60% and the 30-year yield at 4.77%, steepening the yield curve.
• November PCE data came in softer than expected, with monthly headline inflation at 0.1% and annual at 2.4%, below the 2.5% forecast.
• Core PCE also missed expectations. This slight disinflationary print may not alter the Fed’s recent hawkish stance significantly though.
• The Federal Reserve’s hawkish signals and fewer projected cuts in 2025 continue supporting the US Dollar’s relative strength.
• Meanwhile, robust Q3 GDP at 3.1% SAAR and solid consumer spending highlight underlying US economic resilience.
• The Atlanta Fed GDPNow model forecasts Q4 growth at 3.2% SAAR, and the New York Fed’s Nowcast sees Q4 at 1.9% SAAR, maintaining an upbeat growth narrative.

DXY technical outlook: Indicators ease as index slips below 108.00

After Wednesday’s upward movements, indicators are easing as the index breaks below 108.00 on Friday, currently hovering near 107.60. The pullback suggests the recent rally may be taking a breather. Still, if the DXY can hold above its 20-day Simple Moving Average, the broader bullish structure remains intact, leaving room for further gains once profit-taking subsides and fundamental drivers reassert themselves.