US Dollar Forecast: DXY Slips as Traders Eye PCE Inflation Report; Gold Firms

US Dollar Softens as Traders Await PCE Inflation Report

The U.S. Dollar Index (DXY) traded lower on Wednesday, retreating to a one-week low as traders positioned themselves ahead of the release of the October Personal Consumption Expenditures (PCE) Price Index. The index, which measures the dollar against a basket of major currencies, dropped 0.45% to 106.42, touching a session low of 106.33. Markets are now focused on the PCE report, expected to provide key insights into U.S. inflation trends and the Federal Reserve’s monetary policy outlook.

Dollar Weakens Amid Lower Technical Support

The DXY’s short-term trend turned bearish earlier in the session, with sellers breaching the minor support level at 106.11. Analysts suggest that continued selling pressure could push the index toward a pivot at 105.72. A break below this level might accelerate losses, targeting a support zone defined by the 200-day moving average at 103.997 and the 50-day moving average at 103.832. However, a rebound and close above intraday levels could indicate renewed buying interest, reflecting the broader data-driven market sentiment.

PCE Report Holds Market Attention

The October PCE Price Index, a preferred inflation gauge for the Federal Reserve, is forecasted to rise 0.25% month-over-month and 2.3% year-over-year for the headline figure, with core PCE expected at 0.27% and 2.8%, respectively.

These figures are marginally higher than September’s data and could highlight persistent inflation above the Fed’s 2% target. A stronger-than-expected report may temper expectations for rate cuts, leading to higher Treasury yields and a stronger dollar.

Conversely, a softer PCE reading could revive speculation of a near-term Fed pivot, weakening the dollar while boosting gold and equity markets.

Trump Tariff Concerns Add Pressure

Lingering uncertainty over President-elect Donald Trump’s tariff plans on Canada, Mexico, and China has also weighed on the dollar. Investors remain wary of potential economic disruptions, although analysts suggest that inflationary risks could constrain aggressive policy measures. The yen outperformed the greenback, gaining over 1% as traders adjusted positions ahead of Japan’s December rate decision and as the yen benefitted from its exclusion in potential U.S. trade disputes.

Market Outlook

The DXY’s direction hinges on today’s PCE report. A hotter reading would likely support Treasury yields and strengthen the dollar, exerting downward pressure on gold and growth-sensitive equities.

In contrast, a weaker-than-expected report could lead to dollar softness, boosting gold and risk assets like technology stocks. Traders should also monitor Fed commentary and upcoming economic data for further cues.

Short-term momentum suggests cautious trading near key support levels, with a bullish or bearish breakout contingent on inflation data outcomes.

More Information in our Economic Calendar.