Dollar holds firm, focus turns to inflation data

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Next week, markets will continue to digest the outcomes of recent central bank meetings. Additionally, market participants will closely monitor the release of economic data, with a particular focus on inflation figures from the Eurozone and the US Core Personal Consumption Expenditure (PCE) index.

Here is what you need to know for next week: 

The US Dollar Index recorded its tenth consecutive weekly gain, ending around 105.50. The DXY continues to trend upward, supported by US economic data and the recent Federal Reserve (Fed) meeting.

During the FOMC meeting, interest rates were left unchanged in the range of 5.25% to 5.50%. In terms of macroeconomic projections, most members still see the possibility of further rate hikes later this year. Economic data in the US showed mixed results, with housing data coming in weaker while Jobless Claims dropped to the lowest level since January.

Next week, the key focus in the US will be on Friday’s release of the Fed’s preferred measure of consumer inflation, the Core Personal Consumption Expenditure (PCE) Price Index. It is expected to show a decline from an annual rate of 4.2% to 3.9%. The third estimate of Q2 GDP will be released on Thursday.

The Japanese yen was among the worst-performing major currencies. The Bank of Japan (BoJ) left its monetary policy unchanged at the September meeting, with Governor Ueda stating that any change would only occur when the achievement of 2% inflation is in sight. Japan will release several economic indicators next Friday, including the Tokyo Consumer Price Index, Unemployment Rate, Industrial Production, Retail Sales, Consumer Confidence, and household spending for August. However, the focus will remain on the potential intervention from Japanese authorities to curb the yen’s weakness. USD/JPY reached its highest level in decades above 148.00, supported by higher US yields and the BoJ’s policy stance.

The British Pound lagged following the Bank of England’s decision to keep interest rates unchanged after a slowdown in inflation in August. Next Friday, the UK will release a new estimate of Q2 GDP growth. GBP/USD declined for the third consecutive week, reaching its lowest level since March at 1.2232, before closing around 1.2260. The pair has strong support around 1.2200. EUR/GBP surged from below 0.8600 to 0.8700, marking its biggest weekly gains since February.

EUR/USD finished the week near 1.0650 after hitting fresh monthly lows at 1.0614. The Eurozone PMI provided some relief with a rebound on Friday. Inflation data will be crucial next week, with Spain and Germany kicking off with CPI on Thursday, followed by France, Italy, and the Eurozone on Friday.

The Swiss franc lost ground against major currencies after the Swiss National Bank (SNB) left its key interest rate unchanged at 1.75%. The Swissy was also influenced by the dovish stance of the European Central Bank. USD/CHF accelerated to the upside, breaking decisively above 0.9000 to its highest level since June. EUR/CHF surged from around 0.9550 to 0.9660.

AUD/USD continued to trade within a range between 0.6500 and 0.6350. Australia will release the Monthly Consumer Price Index on Wednesday, with the annual rate expected to rebound from 4.9% in July to 5.2% in August. Retail sales data will be released on Thursday.

The New Zealand Dollar was the best-performing major currency during the week. NZD/USD gained almost 1%, rising to 0.5975 but was unable to reclaim the 0.6000 level.

On a volatile week for metals market, Gold ended the week flat around $1,925 after recovering ground on Friday. Silver remained above $23.00 and closed around $23.50.