Dollar edges up ahead of PCE inflation as stocks drift

Big Tech woes weigh on Wall Street 

The US dollar looks set to pare its monthly losses as it heads for its first weekly gain since mid-July amid more evidence that the US economy is humming along nicely. The same cannot be said for stocks on Wall Street. Whilst the Dow Jones is positive for both the week and the month, the S&P 500 and the Nasdaq have had a choppy time.

AI darling Nvidia is down more than 9% in the week-to-date, wiping out its monthly advance after its earnings failed to live up to the very high expectations. Many big tech names are also in the red for the week and the month, with a few exceptions such as Apple.

US data continues to defy doom and gloom 

It’s possible that the underwhelming earnings season was more of a reality check for the hefty valuations than a reason to turn bearish. But underscoring the nervous mood in equities has been the uncertainty over the Fed rate path.

Fed Chair Jerome Powell may have opened the door to a 50-basis-point rate cut in his Jackson Hole speech, but the data just doesn’t seem to support hitting the panic button. Only yesterday, US GDP growth was revised higher for the second quarter and weekly jobless claims showed no sign of a worsening labour market.

Investors’ next focus is today’s PCE inflation readings as well as the personal income and spending data. The core PCE inflation metric is expected to have ticked up to 2.7% y/y in July, though, the picture is much more encouraging on a 3-month annualized basis, and as long as that remains the case, rate cut bets for September should stay intact.

Dollar on firmer footing as euro skids 

For the US dollar, there’s unlikely to be anything in today’s numbers that would back the case for a 50-bps cut in September. Nevertheless, its weekly gains would be at risk from a downside surprise.

Aside from the odds of a double Fed rate cut holding steady around 30%, a weaker euro has also boosted the dollar lately.

Inflation in the euro area fell from 2.6% to 2.2% y/y in August according to the flash estimate. A 25-bps cut at the ECB’s September meeting is almost fully priced in and today’s data suggest policymakers will signal more easing in the months ahead. The euro is down by about 1% against the US dollar this week.

Jordan talks down the franc 

The Japanese yen is also headed for slight weekly losses against the greenback, barely reacting to today’s stronger-than-expected inflation data for the Tokyo region.

The Swiss franc, meanwhile, came under pressure after SNB Chairman Thomas Jordan warned yesterday that the currency’s appreciation in recent months has made the situation “difficult” for Swiss industry.

Gold holds below record, supply troubles boost oil 

In commodities, gold continued to flirt with all-time highs but has so far failed to crack the $2,530 level, with the firmer dollar not helping. Oil futures are on track to close higher for the week, although they remain confined within the current downward trajectory.

That could change if oil production in Libya affected by the power struggle between rival political factions remains offline. Adding to the supply disruptions, Iraq has said it plans to lower output in September after recently exceeding its OPEC production quota.