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US dollar dips, gold bounces ahead of US inflation data

Uncover how CPI data influences US dollar strength, the sustained rally of gold prices, and market expectations ahead of PCE data. Explore the interplay of economic indicators and policy decisions shaping financial trends.
Source: Bloomberg
Picture of Frank Kaberna
Frank Kaberna
Director of Strategy, Chicago

Data current as of 2/27/2024

Key points

  • US Dollar has weakened since CPI data: (0:27)
  • Gold prices hold onto gains near $2050: (1:26)
  • Will PCE data decrease further?: (2:26)
  • January CPI data sent USD higher: (4:18)
  • First expected rate cut still data dependent: (5:07)

Impact of CPI data on the US dollar

The release of CPI inflation data on February 13th sent US dollar to new year-to-date highs against the euro. The initial surge in demand for the US dollar was driven by CPI inflation data surpassing expectations by 0.2%, emphasizing the dollar's vulnerability to economic indicators and their potential to signal shifts in value. Since then, the euro has made back its losses - trading comfortably above 1.0800 ahead of PCE inflation.

Sustained momentum in gold prices

In parallel, gold prices have demonstrated resilience, managing to maintain their ascent near $2050, shortly after rallying from the $2000/oz mark. This continued rise places the precious metal within reach of its historic highs around $2100, affirming gold's status as a safe-haven asset amid uncertainties. The steadfast increase in gold prices amidst fluctuating dollar strength highlights its appeal to investors seeking stability in turbulent financial conditions.

Anticipations ahead of PCE data release

With the core Personal Consumption Expenditures (PCE) index anticipated to decline for the 12th consecutive month to 2.8%, the focus now shifts towards how this forthcoming data might influence market dynamics. The speculation surrounding the first expected rate cut being contingent upon such economic indicators adds another layer of complexity. Currently, probabilities provided by the CME FedWatch tool lean towards a 25 basis points cut at June's Federal Open Market Committee (FOMC) meeting, yet an increase in the likelihood of maintaining rates signifies the ongoing uncertainty in monetary policy directions.

The aftermath of January's CPI data reveals a multifaceted financial environment, where inflation metrics not only dictate the US dollar's trajectory but also affect investor attraction towards traditional safe havens like gold. As the market braces for the PCE data release, the interplay between these economic indicators and the Federal Reserve's policy decisions will be crucial in shaping the financial outlook for the remainder of the year. This dynamic scenario serves as a reminder of the importance of staying attuned to economic trends and their potential impact on trading strategies.

How to trade US dollar

  1. Open an account to get started, or practice on a demo account
  2. Choose your forex trading platform
  3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.

Reviewed by:
Glen Frybarger
Senior Content Strategist, Chicago

This information has been prepared by tastyfx, a trading name of tastyfx LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. tastyfx accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.