Dollar Pulls Back as Markets Await PCE Data

Key Takeaways:

*The dollar eased from its bullish run, holding near the $99.00 liquidity zone, with downside bias persisting below the recent $98.80 high.

*Dovish signals from Powell’s Jackson Hole remarks have strengthened expectations of rate cuts at the September 17 meeting, keeping traders cautious ahead of Friday’s PCE inflation data.

*Resilient U.S. PPI and wage growth are lending support, but a soft PCE print could deepen the dollar’s pullback, while stronger inflation may trigger a temporary rebound.

Market Summary:

The U.S. dollar has pared recent gains, entering a phase of consolidation near the psychologically significant $99.00 level. Despite holding above major support zones, the greenback remains below its recent peak near $98.80, suggesting a near-term loss of bullish momentum as markets await fresh catalysts.

Investor attention is squarely focused on Friday’s release of the Personal Consumption Expenditures (PCE) report, the Federal Reserve’s preferred measure of inflation. The cautious market mood follows comments from Fed Chair Jerome Powell at the Jackson Hole symposium, where he indicated that risks from the labor market have rebalanced relative to inflation, opening the door to potential rate cuts. Futures markets are now increasingly pricing in a dovish pivot at the Fed’s September 17 meeting.

Underlying strength in the U.S. economy has tempered the dollar’s decline, however. Stronger-than-expected Producer Price Index (PPI) data and sustained wage growth have provided fundamental support, preventing a steeper sell-off. Market consensus anticipates core PCE inflation of 2.7% year-over-year. A reading below that level could amplify expectations for Fed easing and extend the dollar’s retreat, while an upside surprise may lend the currency temporary support by reinforcing the narrative of persistent inflationary pressures.

The dollar’ s near-term trajectory will likely be determined by the interplay between incoming data and evolving expectations for monetary policy, with the PCE release serving as a critical inflection point.

Technical Analysis 

U.S. DOLLAR (DXY), H4

The U.S. Dollar Index (DXY) faced renewed selling pressure after failing to break above the critical liquidity zone near 98.65, declining 0.6% in the previous session. The index is now testing its prior low, a level that has provided support in recent trading. A sustained break below this threshold would signal a strengthening bearish bias and could open the path toward a deeper retracement, with the next major support seen near the 97.55 level.

Momentum indicators currently reflect a lack of directional conviction. The Relative Strength Index (RSI) is hovering near its midline, offering little indication of overbought or oversold conditions, while the Moving Average Convergence Divergence (MACD) is fluctuating near the zero line, failing to provide a clear near-term signal. 

The index’s near-term trajectory will likely be determined by its ability to defend the current support region. A rebound from these levels could see the dollar re-challenge the 98.65 resistance, while a breakdown may accelerate selling toward lower supports, particularly if upcoming inflation data or Fed communications reinforce a dovish policy outlook.

Resistance level:98.45, 98.82

Support level: 97.55, 96.88