Dollar Slides as Core PCE Looms

1 July 2025, 07:01

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Key Takeaways:

*U.S. Dollar Index hits 3-year low as traders brace for PCE

*Weak GDP and rising jobless claims reinforce Fed cut bets

*Trump-Powell tension, fiscal risks erode dollar confidence

Market Summary:

The U.S. Dollar Index (DXY) extended its decline on Thursday, slipping toward three-year lows near 97.00 as markets awaited the release of the Fed’s preferred inflation gauge—Core PCE. The greenback remains under pressure following a string of softer U.S. data, including a downward revision to Q1 GDP (-0.5% annualized) and a surge in continuing jobless claims to 1.974 million—fueling speculation that the Fed may initiate rate cuts as early as July.

Uncertainty over the Fed’s future leadership has added to the dollar’s fragility. Comments from President Trump hinting at a potential early replacement of Fed Chair Powell—possibly with a dovish nominee—have stirred concerns about central bank independence, further muddying the policy outlook. Traders now price in a 27% chance of a July cut, and over 90% odds for easing by September.

Fiscal concerns are also rising. As U.S. deficits widen and debt servicing costs increase, the dollar’s depreciation complicates the government’s fiscal position, particularly in light of foreign-denominated obligations. This macro backdrop is prompting investors to reassess dollar exposure in favor of currencies with more stable fiscal and political trajectories.

On the geopolitical front, the tentative ceasefire between Israel and Iran has led to a short-term pullback in safe-haven demand, encouraging flows into risk-sensitive currencies like the euro and sterling—both of which have surged to multi-year highs. However, the sustainability of this diplomatic reprieve remains uncertain.

Looking ahead, the dollar’s trajectory will be shaped by today’s PCE reading, Fed rhetoric, and the looming July 9 U.S. tariff deadline. A dovish inflation print could accelerate dollar losses toward the 96.30 support level, while a surprise uptick—or a flare-up in trade or geopolitical tensions—may offer only temporary relief.

Technical Analysis

Dollar_Index, H4:

The US Dollar Index (DXY) remains under pressure after breaking down from its short-term ascending channel, with price action extending below the 97.80 horizontal support and now consolidating just above the 97.30 level. The failure to defend the prior channel structure and the breach of recent swing lows underscores deteriorating bullish momentum and raises the risk of a continued downside correction.

Momentum indicators further validate the bearish tilt. The Relative Strength Index (RSI) hovers near 34, deep in bearish territory, suggesting persistent selling pressure and limited bullish recovery attempts. While there’s a modest uptick, it remains well below the 50 threshold, indicating weak buyer conviction. Meanwhile, the MACD continues to track beneath the signal line and zero mark, with only a slight narrowing of the histogram — not yet sufficient to signal reversal momentum.

Unless DXY can reclaim the 97.80 resistance level and re-establish upward traction, the broader bias remains tilted to the downside. Failure to stabilize near 97.30 could open the path toward deeper support around 96.50. The near-term outlook hinges on whether this pause leads to a corrective rebound — or evolves into a sustained bearish leg lower.

Resistance Levels: 97.80, 98.60
Support Levels: 97.30, 96.50