US Dollar Gains Post-PCE Release, Stagflation Fears Loom

USD Index image

The US Dollar (USD) demonstrates strength ahead of the week’s final economic data releases, bouncing back after Thursday’s volatile reaction to the Q1 GDP figures. While the initial surge fueled by high Personal Consumption Expenditure (PCE) numbers hinted at delayed interest rate cuts, further analysis led to a risk-on shift as stagflation fears took hold.

Key Factors:

  • PCE Data Impact: Stronger-than-expected PCE inflation, combined with robust Personal Income and Spending figures, suggest persistent inflationary pressures, potentially limiting the Fed’s ability to cut rates and supporting a stronger USD.
  • Stagflation Worries: The prospect of stagflation, a scenario characterized by high inflation and slowing growth, raises concerns about the Fed’s policy options and could weigh on the USD in the longer term.
  • Shifting Market Sentiment: The initial risk-off reaction to the PCE data has given way to a risk-on sentiment, tempering the USD’s strength, as investors anticipate potential rate cuts further down the line.

Technical Analysis: Bearish Bias Remains

  • Overall Bearish Pattern: The DXY continues its bearish trend, with a likely weekly close in the red.
  • Key Resistance : The DXY needs to reclaim the 105.88 level before targeting the April 16 high at 106.52 and potentially the 107.00 range.
  • Downside Support: Initial support lies at 105.12 and 104.60. A further break could expose the 55-day and 200-day SMAs (104.40 and 104.10), with the 100-day SMA near 103.70 providing additional support.

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