Dollar Falls as Inflation Concerns Ease and US Consumer Sentiment Slips

Core Insights - The dollar index fell by -0.41% due to the August core PCE price index meeting expectations, potentially allowing the Fed to continue easing monetary policy [1] - The University of Michigan's US September consumer sentiment index was revised lower to a four-month low, contributing to the dollar's losses [1] Economic Indicators - US August personal spending increased by +0.6% month-over-month, exceeding expectations of +0.5%, marking the largest increase in five months [3] - US August personal income rose by +0.4% month-over-month, also surpassing expectations of +0.3% [3] - The August core PCE price index rose by +0.2% month-over-month and +2.9% year-over-year, aligning with expectations [3] Inflation Expectations - The University of Michigan's US September 1-year inflation expectations were revised lower to 4.7% from 4.8% [4] - The September 5-10 year inflation expectations were also revised downward to 3.7% from 3.9% [4] Federal Reserve Outlook - Markets are pricing in a 90% chance of a -25 basis point rate cut at the next FOMC meeting on October 28-29 [5] - Richmond Fed President Tom Barkin noted that uncertainty in the economic outlook has started to lift for US companies, indicating limited risk of further deterioration in employment and inflation [4] Currency Market Dynamics - The euro rose by +0.32% against the dollar, supported by the weaker dollar and stronger-than-expected inflation expectations from the ECB [5] - Central bank divergence is evident, with the ECB seen as nearing the end of its rate-cut cycle while the Fed is expected to cut rates approximately two more times by the end of the year [6]