Dollar Holds Firm on Hawkish FOMC Minutes

The dollar index was little changed at around 102 on Friday, as disappointing earnings from major tech companies and renewed concerns over the sustainability of the AI-driven rally triggered a flight to safety. Nevertheless, the greenback is up 0.2% for the week and 0.5% for the October month, as investors continue to assess the economic outlook and the Federal Reserve's policy path. US data released on Thursday showed that the US economy expanded at a stronger-than-expected annualized rate of 3.4% in Q3, supported by robust consumer spending and AI-driven investment. The US PCE price index also increased 0.5% in September, marking its largest monthly gain since March and reinforcing expectations of a Fed rate hike later this year. Although the central bank maintained interest rates at current levels on Wednesday, markets continue to assign roughly a 72% probability of a rate increase in December, according to the CME FedWatch Tool.

The US dollar index declined toward 101.5 on Friday, extending its losses for a third consecutive session as Treasury yields moved lower amid a global selloff in technology and artificial intelligence stocks that prompted investors to seek the relative safety of government bonds. The shift toward safer assets intensified following disappointing earnings reports from major technology companies, including Alphabet, Amazon and Intel, fueling concerns over the sustainability of massive AI expenditures. Meanwhile, US data released on Thursday showed that the PCE price index rose 0.5% in September, marking its largest monthly increase since March and strengthening expectations of a potential Federal Reserve rate hike later this year. Although the central bank kept interest rates unchanged on Wednesday, markets continue to price in roughly a 75% probability of a rate increase in December, according to the CME FedWatch Tool.

The US dollar index edged up to 102.2 on Thursday after data showed resilient economic growth and persistent inflation. Annual headline PCE inflation accelerated to 3.6% in September, while core inflation reached 3.1%, both remaining above the Fed’s 2% target. Meanwhile, US GDP expanded at a 3.4% annualized rate in the third quarter, exceeding forecasts of 3.1% and accelerating from 2.2% in the previous quarter. Growth was supported by robust consumer spending and a surge in private investment, particularly in equipment and intellectual property linked to artificial intelligence. Quarterly PCE inflation nevertheless eased compared with the second quarter, offering some relief. Consumer spending rose 0.5% in September, while initial jobless claims fell to 194,000, indicating continued labor market resilience. Following the Fed’s decision to hold interest rates at 3.75%-4%, policymakers are likely to assess incoming data before determining their next move.