US Dollar Forecast: Mixed Economic Data Pressures DXY, Bitcoin Near All-Time High

U.S. Dollar Index Slips as Traders Eye PCE Data and Treasury Yields

The U.S. Dollar Index (DXY) edged lower Wednesday as traders prepared for Thursday’s core PCE inflation report, balancing mixed U.S. economic data with shifting Treasury yields. A combination of strong private job growth and lower-than-expected GDP figures has added complexity to the Fed’s rate outlook, leaving the dollar under mild pressure.

Technically, the trend is up, but momentum just turned down after the confirmation of Tuesday’s closing price reversal top. The next big level to watch is the 200-day moving average at 103.818. Reaction to this indicator will make or break the index.

If buyers come in on the first test of this level then look for them to take a run at the multi-month high at 104.799. If sellers drive the index through the 200-day MA then 103.144 becomes the next downside target.

Economic Data Adds to Rate Uncertainty

The dollar initially gained on robust private payroll data, with ADP reporting an unexpected surge in October hiring, despite potential disruptions from strikes and hurricanes. This resilience in the labor market has led traders to delay bets on Fed rate cuts. However, separate data showed that third-quarter GDP growth slowed to 2.8% annually, below the anticipated 3%, softening earlier dollar gains and prompting a mixed outlook on Fed policy.

Pepperstone’s Michael Brown commented that this data “reaffirms that the U.S. is indeed still on course for a ‘soft landing’ as growth remains resilient.” However, the Fed’s path remains unclear, with traders looking to Thursday’s PCE inflation data for further direction.

Sterling Pressured by U.K. Budget Impact on Bond Yields

The British pound fell 0.42% to $1.2961 after briefly reaching a nine-day high. U.K. Chancellor Rachel Reeves presented the Labour government’s first budget on Wednesday, emphasizing fiscal discipline and public finance stability. The budget’s goal is to maintain investor confidence, especially following the market turmoil from Liz Truss’ tax-cutting policies in 2022.

Jane Foley, Rabobank’s head of FX strategy, noted that “for Chancellor Reeves, PM Starmer, gilts, the pound, and the entire U.K. economy, there is potentially a huge amount resting on this budget.” The British bond yields’ pullback added pressure on sterling as the government’s cautious fiscal strategy unfolded.

Euro Holds Steady as Traders Weigh German Growth Data

The euro traded flat at $1.0814, swayed by stronger-than-expected German growth and inflation data. German indicators temporarily lifted the euro, reducing odds of a substantial rate cut by the European Central Bank in December. Additionally, third-quarter eurozone GDP growth came in at 0.4%, slightly above expectations, which initially supported the euro before U.S. payroll data tempered gains.

Bitcoin Surges on Anticipated Trump Election Victory

Bitcoin rose close to a record high amid trader optimism over a potential Donald Trump victory in the U.S. presidential election. Reaching $73,609.88 on Tuesday, the cryptocurrency traded around $72,026 on Wednesday. Trump’s pro-crypto policies, including his aim to make the U.S. a “crypto capital,” have fueled bullish sentiment, pushing Bitcoin near its all-time high from March.

Market Forecast: Cautious Dollar Outlook

With Thursday’s PCE data set to influence expectations, the dollar may see further downside if inflation shows signs of easing. Mixed economic signals suggest ongoing volatility for the greenback, with a cautious outlook on further gains unless PCE data points to enduring price pressures that could support Fed tightening.