Dollar Tracks Treasury Yields Lower

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.

The US dollar index traded around 102.1 on Thursday, holding on to losses from the previous session after the Federal Reserve kept interest rates unchanged as widely expected but provided limited clarity on its next policy move. Fed Chair Kevin Warsh also indicated that the central bank could reduce the number of interest-rate decisions from eight to six annually, adding to market uncertainty. Meanwhile, two officials dissented in favor of a 25-basis-point rate hike, strengthening market expectations for a potential increase in December amid persistent energy-driven inflation. Investors are now awaiting the US PCE price index, the Fed’s preferred inflation gauge, for further signals on the future path of monetary policy. Attention is also turning to upcoming policy decisions from the European Central Bank and the Bank of Japan, with both central banks widely expected to leave interest rates unchanged.