Dollar Falls as Softer PCE Data Fuels Fed Caution

The US Dollar fell against most currencies after the release of softer-than-expected PCE inflation data, which reinforced New York Fed President John Williams' argument that there is 'no need for urgency' on another rate hike. The probability of an October Fed hike dropped from around 51% to 37.1%, with a hold at 62.9% now the base case.

The Australian Dollar, however, underperformed every other major currency despite a benign inflation report, extending its post-RBA decline. The Aussie fell even against a broadly weaker Dollar, as markets remained cautious about the Reserve Bank of Australia's (RBA) willingness to tighten policy further.

In contrast, the British Pound gained ground as stronger GDP data landed on top of an already-developing BoE tightening repricing, pushing November hike odds to around 89%. The Sterling's gains broadened as markets pushed the expected BoE policy path higher.