Dollar down ahead of US PCE figures
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Dollar down ahead of US PCE figures

On Friday, the dollar fell to a one-month low against a basket of major currencies as traders reduced expectations for a Federal Reserve rate hike in the second half of the year, amid signs the Fed might slow or pause its tightening cycle.

FX market

The EUR/USD pair soared to a one-month record high of 1.0765, while the GBP/USD pair rose to a fresh monthly high of 1.2666 after the dollar dropped to its weakest level against the euro and sterling since April 26. 

As the US dollar weakens, the yellow metal moves higher during a period of market indecision. However, the gains made by the metal in recent weeks have been challenged by the cautionary mood ahead of the US Federal Reserve's preferred inflation measure, namely the US Core Personal Consumption Expenditure (PCE) Price Index.

Equity market

A mixed open in European markets is expected to end another choppy week, though with a positive bias. The FTSE100 is on course for its best week of gains since March, boosted by a rebound in the retail sector. It comes on the heels of Wall Street's higher close on Thursday evening, which put investors in a buying mood as earnings forecasts of retail companies are positive, and worries about the Federal Reserve raising rates too aggressively are fading.

All three major stock indexes have posted strong gains this week, with consumer discretionary and microchip stocks outpacing the market overall.

Thursday's economic data presented good news wrapped in bad as it revolved around jobless claims, pending home sales, and GDP. This may indicate that the economy is showing just enough deterioration to prompt the Fed to switch to a much less hawkish stance before the end of the year.

Events of today

Today's US PCE Core Deflator could offer some insight into cooling inflation, hoping it could drop to 4.9% from 5.2% in March. A soft reading of the PCE Core Deflator, the Federal Reserve's preferred measure for targeting inflation, could lend further support to the notion that there might be a rate pause in September after Atlanta Fed President Bostic floated the idea earlier this week. PCE Deflator is forecast to fall to 6.2% from 6.6%.

The Personal Spending Index is expected to rise by 0.7% in April, down slightly from its 1.1% rise in March, while personal incomes are forecast to increase by 0.5%.