The US dollar slumped to finish the trading week and registered a tepid weekly loss as financial markets brace for next week’s highly anticipated Federal Reserve policy meeting. In the meantime, further data cemented plans of the US central bank loosening conditions.
According to the Bureau of Labor Statistics (BLS), import prices fell by 0.3% in August, while export prices plunged by 0.7%. On a year-over-year basis, import prices eased to 0.8%, and export prices fell 0.7%.
The University of Michigan’s Consumer Sentiment Index rose to a higher-than-expected 69 in September, up from 67.9 in August. The one-year inflation outlook dipped from 2.8% to 2.7%, and the five-year forecast edged up to 3.1%.
“The gain was led by an improvement in buying conditions for durables, driven by more favorable prices as perceived by consumers. Year-ahead expectations for personal finances and the economy both improved as well, despite a modest weakening in views of labor markets,” said Surveys of Consumers Director Joanne Hsu in a statement.
Suffice it to say that inflation is moderating, and consumer confidence is improving.
This could be welcomed news for the monetary authorities. While the Fed is overwhelmingly expected to cut interest rates at next week’s Federal Open Market Committee (FOMC) policy meeting, traders are still expecting just a quarter-point rate cut.
Analysts at Fitch Ratings say that the central bank is unlikely to be aggressive in its monetary easing endeavors.
“The long-awaited Fed easing cycle is upon us, but the FOMC will be cautious after the inflation challenges of the past few years. The pace of rate cuts will be gentle and monetary easing won’t do much to boost growth next year,” said Brian Coulton, Chief Economist, in a note.
Earlier this week, the consumer price index (CPI) report revealed the annual inflation rate slowed to 2.5%, the lowest level since February 2021.
This would be a positive development for the greenback and dollar-related assets, especially as they continue to weaken.
US Treasury yields were red across the board, with the benchmark ten-year yield down 1.4 basis points to 3.666%. The two-year yield sank 4.3 basis points to 3.605%, while the 30-year bond was little changed at 3.995%.
The US Dollar Index (DXY), a metric of the buck against a basket of currencies, tumbled 0.37% to below 101.00. The DXY is poised for a weekly drop of 0.2% and is down 0.35% year-to-date.