US Dollar Fundamental Forecast: Bullish
- US Dollar[1] supported by hawkish Federal Reserve policy expectations
- Core PCE data is in focus with all eyes on where US inflation is going
- Fed Chair pick a source of near-term USD[2] volatility, but unlikely to last
The US Dollar may remain on the offense in the week ahead as markets turn to important economic event risk from the United States. Inflation[3] has been a hot topic in the country, with headline price growth at its most aggressive since the early 1990s using year-over-year timeframes. Now, the Federal Reserve’s preferred gauge of inflation, core PCE, is in focus.
It is expected to cross the wires at 4.1% y/y in October, up from 3.6% prior. That would be the fastest pace since January 1991 - see chart below. Ongoing elevated price readings above the central bank’s target would likely continue to keep Fed policymakers on their toes. Still, the broader argument from the central bank remains that the recent bout of inflation is ‘transitory’.
US Core PCE Data Since 1978 – (Y/Y)
Chart Created in TradingView[4]
The Citi Economic Surprise Index tracking the US has been pushing higher into positive territory, with the gauge now near the June peak. This suggests that economists are broadly underestimating the health and vigor of the economy. That may open the door to higher-than-expected data surprises, and not just from PCE data. Data on durable goods orders and new home sales as well as the University of Michigan consumer confidence indicator and minutes from this month’s FOMC[5] meeting are also due.
Check out the DailyFX Economic Calendar[6] for more information about US data in the week ahead!
Looking at the chart below, the US Dollar’s
