USD declined against most of the other major currencies in the European session on Tuesday as investors waited for the release of the U.S. April data on the core personal consumption expenditures (PCE) price index - the Federal Reserve’s preferred inflation metric - later this week, which could shed more light on the timing of interest-rate cuts.
The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.24% from the previous close to 104.34.
Economists expect the PCE price index minus food and energy - due on Friday - to increase 0.2% MoM in April. That would mark the weakest monthly gain in four months. On a YoY basis, the core PCE measure is forecast to rise 2.8%, unchanged from the prior month’s level.
If Friday’s data justify these expectations, this could prompt markets to increase their bets for a September rate cut by the Fed, putting pressure on the U.S. currency. Currently, markets are seeing a 51.1% probability of such a move, according to the CME FedWatch Tool.
The Fed’s policymakers, including its chair Jerome Powell, have highlighted that they need to see more evidence of inflation's sustained movement towards 2% before lowering the interest rates.
Another notable report of the week will be the release of the Commerce Department's second estimate on the U.S. GDP first-quarter growth, scheduled for May 30.