Dollar Defies Expectations with Record High as Inflation Data Falters
The US Dollar Index (DXY) has reached its June year-to-date high of 101.80, defying expectations that softer inflation data would weaken the currency.
Recent revisions to Personal Consumption Expenditures (PCE) inflation figures show a deceleration in core PCE inflation, but economists at TD Securities argue that this will not prompt a more gradual Federal Reserve tightening cycle.
Oscar Munoz and Eli Nir at TD Securities expect sticky inflation and 3.0% Q3 GDP growth to keep the Fed hawkish, with an October rate hike firmly on the table.
In contrast, economists at MUFG note that softer PCE data and dovish central bank messaging have eased expectations for rapid monetary tightening, making it less likely that the Fed will raise rates as aggressively as currently priced.