The US dollar slipped against all major peers Thursday, extending a modest retreat as investors digested a fresh round of cautious commentary from Federal Reserve officials. Oil also edged lower, unwinding part of its sharpest rally since July, as markets recalibrated expectations ahead of key US inflation data due Friday.
Fed Voices Rein in Aggressive Bets
San Francisco Fed President Mary Daly signaled that further rate cuts are likely but stressed they should be delivered with caution, a message echoing Chair Jerome Powell’s remarks earlier this week. The measured tone has cooled the exuberance that fueled recent market rallies, leaving risk assets vulnerable to a pullback.
Powell has repeatedly warned of the delicate balance between containing still elevated inflation and cushioning a labor market showing signs of strain. Traders remain convinced of additional easing, yet the central bank’s resistance to endorsing a steeper rate cut path is keeping volatility high across currencies and commodities.
Inflation Data Sets the Stage
Attention now turns to Friday’s release of the Fed’s preferred inflation gauge, the core PCE price index. Markets expect a slower monthly rise of 0.2% in August, following July’s 0.3%, with the annual rate holding at 2.9%. A softer print could give policymakers breathing room to focus on labor market risks, while a stickier outcome may limit the Fed’s willingness to ease aggressively in the near term.
Market Implications
- Dollar: Weakness reflects profit taking, but downside could be shallow until PCE data clarifies the policy path.
- Oil: Pullback follows a sharp rally; traders await fresh supply cues.
- Risk Assets: With Fed guidance cautious, rallies look fragile and susceptible to reversal.
SARACEN MARKETS VIEW
The dollar’s slide appears more tactical than structural, with markets unwilling to commit ahead of Friday’s inflation print. The Fed’s cautious stance is draining momentum from the risk rally, suggesting traders should brace for a corrective phase rather than chase highs. For execution, Friday’s PCE release is the week’s defining event expect volatility spikes to create both risks and opportunities across USD, gold, and equities.
Disclaimer: This report is for informational purposes only. It does not constitute investment advice or represent the official views of any central bank or regulatory body.