Dollar Down for 2nd Day

The US dollar index weakened for a second consecutive session, falling to 101.1 on Friday after a broadly in-line PCE inflation report led investors to slightly scale back expectations for Fed rate hikes this year. The dollar’s losses were most pronounced against the euro and the Swiss franc. Still, the greenback remains up about 0.3% for the week, supported by a more hawkish Fed tone earlier in the month. New Fed Chair Warsh reaffirmed the central bank’s commitment to bringing inflation under control, easing concerns that he might come under pressure from US President Trump to cut interest rates prematurely. The Fed also raised its 2026 PCE inflation projections. Headline PCE inflation accelerated to 4.1% in May, reinforcing the view that inflation remains sticky. Markets are currently pricing in three Fed rate hikes this year, with the probability of the first move in September standing at around 62%.

The dollar index fell for a second session to 101.2 on Friday, but remained on track for a weekly gain as markets continued to expect the Federal Reserve to raise interest rates later this year. On Thursday, the greenback weakened after the latest US PCE inflation report came in broadly in line with expectations. Although inflation remains well above the Fed's 2% target, the data helped ease concerns about a sharper-than-anticipated pickup in price pressures. Even so, markets are pricing in an 80% chance of a Fed rate hike in December following last week's hawkish pause, while the probability of a September increase stands at around 63%. New York Fed President John Williams also said on Thursday that inflationary pressures are likely to moderate this year but remain uncomfortably high.

The dollar index weakened slightly 101.4 on Thursday, pausing its recent rally after climbing to its highest level since early 2025 in previous session. Investors assess a fresh batch of US economic data alongside the ongoing decline in oil prices, which have now returned to pre-conflict levels, and their implications for the Fed’s monetary policy outlook. The latest US PCE inflation report came in broadly in line with expectations. While inflation remains well above the Fed’s 2% target, the data helped ease concerns about a sharper-than-expected acceleration in price pressures. At the same time, first-quarter GDP growth was revised higher and personal spending accelerated in May, suggesting consumer demand remains resilient. Meanwhile, traders slightly scaled back expectations for Fed tightening, although markets continue to price in at least one rate hike this year. The probability of a Fed rate increase in September fell to 63%, down from 68% the previous day.