The US Dollar Index (DXY) has registered gains for the second consecutive day as Federal Reserve Chair Jerome Powell hinted at a gradual reduction of interest rates. Currently trading around 100.80 during Asian hours, the DXY reflects the dollar’s strength against a basket of six major currencies. Powell’s recent address indicated that the central bank is taking a measured approach to rate cuts, emphasizing that the recent 50 basis point reduction should not suggest a trend of aggressive monetary easing in the future.
Market participants are increasingly considering a potential interest rate cut in November, with the CME FedWatch Tool showing a 61.8% probability for a 25 basis point cut. The likelihood of a more substantial 50 basis point cut has decreased to 38.2% from 53.3% the previous day. These speculations come in light of recent data revealing that August’s Core Personal Consumption Expenditures Price Index only rose by 0.1% month-over-month, falling short of expectations. This aligns with the Fed’s narrative that inflation pressures are moderating, which could influence future monetary policy decisions.
Traders are also awaiting the release of the ISM Manufacturing Purchasing Managers Index (PMI) later in the North American session. An improvement to 47.5 for September is anticipated, up from 47.2 in August. This index serves as a key indicator of the health of the manufacturing sector, derived from a survey of supply executives in the industry. A reading above 50 typically signals expansion within the sector, which would bode well for the USD, while a reading below 50 would indicate contraction and exert downward pressure on the dollar.
The ISM Manufacturing PMI holds significant importance for traders as it provides insights into economic trends and potential shifts in business activity. Strong PMI results can positively impact the dollar, while the accompanying Employment Index and Prices Paid Index offer additional context on labor market conditions and inflation trends, further influencing market expectations.
