Dovish US Data Weakens Dollar Amid Geopolitical Uncertainty

The US Dollar faced a dovish shift last week as key economic indicators underperformed expectations. The US Core PCE Price Index rose only 0.2% month-on-month, below the anticipated 0.3%. Similarly, Average Hourly Earnings increased by just 0.1%, half of the expected 0.3%. These figures, along with weaker Non-Farm Employment Change and a slight rise in the Unemployment Rate, reduced expectations for a Fed rate hike, pushing CME FedWatch probabilities for an October hike from 64.2% to around 17-23%.

Despite these dovish signals, the USD maintained some strength, supported by geopolitical tensions and higher oil prices. However, a relief in oil prices towards the week's end, with WTI crude falling 3.7% to $89.43 and Brent dropping 2.7% to $99.45, eased inflation concerns and bolstered risk appetite. The USD's rate advantage weakened as markets favored a narrative of softer US growth and less imminent Fed tightening.

The EUR/USD pair declined sharply, reaching a 16-month low near 1.1200 before partially recovering. The Euro's weakness stemmed from Europe-specific risks, including France's fiscal concerns and reduced expectations of an ECB hike. The pair's bearish trend, marked by lower highs and lows, suggests continued downward momentum.

The NASDAQ 100 Index briefly hit a new short-term high before retreating, showcasing tech sector outperformance. However, analysts warn of potential AI sector corrections due to inflated valuations and unmet revenue expectations. Despite these concerns, the index's chart remains bullish.