The dollar index remained little changed around 107.3 on Friday, as traders digested the latest PCE report and assessed new tariff developments.
Dollar wavers after PCE
The PCE data aligned with expectations, with annual inflation rates easing slightly, offering some relief over persistent price pressures. However, personal income rose more than expected, increasing by 0.9%—the largest gain in a year—while consumer spending unexpectedly contracted by 0.2%, marking its first decline in nearly two years. The data reinforced market expectations for approximately two quarter-point cuts to the Fed funds rate this year, though uncertainty remains over the exact timing.
Tensions escalation influences forex market
On the trade front, tensions escalated as US tariffs on imports from Mexico and Canada, along with an additional 10% duty on Chinese imports, are set to take effect next week. Investors are wary of potential retaliatory measures from major trading partners, which could impact global supply chains and weigh on economic growth. Meanwhile, former President Donald Trump suggested that the US and UK could reach a trade deal without tariffs, raising speculation about potential post-Brexit trade policies. At the same time, he hinted earlier this week that new levies on the European Union would be announced soon, adding to concerns about a renewed trade war.
For the month, the greenback is down about 1%, pressured by shifting rate expectations and a pullback in safe-haven demand. Looking ahead, traders will closely monitor upcoming economic data and Federal Reserve commentary for further signals on monetary policy, as well as any developments in global trade relations that could influence the currency markets.
