The dollar moved higher on Wednesday due to signs of strength in the US economy after July personal spending and income rose more than expected and Q2 personal consumption was revised upward. Higher bond yields on Wednesday also strengthened the dollar's interest rate differentials. Gains in the dollar were limited on Wednesday after July capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose less than expected.
Also, the July core PCE price index, the Fed's preferred inflation gauge, advanced in line with expectations, a dovish factor for Fed policy. In addition, WTI crude oil fell to a 1.5-week low, lowering inflation expectations and potentially persuading the Fed to loosen monetary policy, a negative factor for the dollar. Gold Price Predictions: Why Morgan Stanley Sees Gold Prices Breaking Above $5,000 in 2027 Can We Really 'Grow Our Way Out Of' $40 Trillion in National Debt?
Why One Economist Says 'The US Has No Chance.' Dollar Slightly Lower on Strong Stocks and Weak Crude Tired of missing midday reversals? The FREE Barchart Brief newsletter keeps you in the know. US July personal spending rose +0.2% m/m, stronger than expectations of +0.1% m/m.
Also, July personal income rose +0.4% m/m, stronger than expectations of +0.2% m/m The US July core PCE price index, the Fed's preferred inflation gauge, rose +0.2% m/m and +3.3% y/y, right on expectations. US July capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.2% m/m, weaker than expectations of +0.7% m/m, although June was revised upward to +1.7% m/m from the previously reported +1.2% m/m. US Q2 GDP was left unrevised at 1.5% (q/q annualized), but Q2 personal consumption was revised upward to 3.4% from the previously reported 3.2%.
Also, the Q2 core PCE price index was revised upward to 3.6% q/q from the previously reported 3.4% q/q. The markets are discounting a 36% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16. EUR/USD (^EURUSD) fell by -0.19% on Wednesday.
The euro was under pressure on Wednesday from a stronger dollar. However, losses in the euro were contained amid hawkish comments from ECB Executive Board member Isabel Schnabel, who said interest rates in the Eurozone must rise further due to inflation risks. Also, Wednesday's fall in crude oil prices to a 1.5-week low supports the Eurozone economy and the euro, as Europe imports most of its energy.
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