US Dollar Forecast: Gold Eases Today, Maintains Weekly Gains on Inflation Data

U.S. Dollar Dips Following Soft Inflation Data, Gold Rallies

The U.S. Dollar weakened against a basket of major currencies on Friday following the release of softer-than-expected inflation data. The Dollar Index (DXY) briefly dipped below the September 18 low of 100.215 before recovering slightly. If bearish momentum persists, traders could target the June 14 bottom of 99.578. On the upside, reclaiming 100.617 would signal potential for a short-covering rally.

At 14:30 GMT, the U.S. Dollar Index (DXY) is trading 100.334, down 0.233 or -0.23%.

PCE Inflation Gauge Falls to 2.2%, Lower Than Forecast

The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred measure of inflation, rose just 0.1% in August, bringing the annual rate down to 2.2%—below economists’ expectations of 2.3%. This marks the lowest level since February 2021, moving closer to the Fed’s 2% target. The core PCE, excluding food and energy, also rose 0.1% for the month, with the annual rate holding at 2.7%.

While inflation data supports the possibility of rate cuts, the report also revealed weaker-than-expected consumer spending and personal income. Both metrics grew by 0.2%, below forecasts, suggesting some caution regarding the U.S. economy’s resilience.

Fed’s Rate Path Shifts Focus to Labor Market

Following the PCE report, expectations for further rate cuts have grown. The Fed’s 0.5% rate cut last week—the largest since the early pandemic—has set the stage for additional easing. The Fed’s current stance suggests at least another 50 basis points of cuts by year-end, but market expectations lean toward a more aggressive path, potentially driving the dollar lower in the coming months.

Gold Supported by Rate-Cut Expectations

Gold and silver prices are poised for weekly gains, with gold up 1.8% as investors anticipate further U.S. rate cuts and benefit from China’s stimulus measures. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, further supporting its price. Silver has also benefited from China’s stimulus but faces potential headwinds due to weaker industrial demand.

Market Forecast: Dollar Pressure to Persist

With inflation cooling and market expectations of further rate cuts intensifying, the U.S. Dollar may continue to face downward pressure in the near term. Gold is likely to maintain its upward momentum as rate-cut expectations bolster its appeal, while further declines in the dollar could reinforce bullish sentiment across other safe-haven assets. Traders should monitor upcoming Fed announcements and economic data for confirmation of these trends.