Firm PCE data could give the USD a lift – Scotiabank

USD is mixed on the day but broader gains extend ahead of price data. Economists at Scotiabank discuss the Dollar outlook.

Month and quarter-end portfolio rebalancing flows could still drive USD selling

Spreads have moved a little in the USD’s favour at the short-end of the curve but the DXY looks relatively fairly valued (based on its correlation with weighted 2-year yield differentials), suggesting limited scope for gains, absent significant new impulses from rates.

Firm PCE data could give the USD a lift but month and quarter-end portfolio rebalancing flows should have driven – and could still drive – USD selling, given US equity market outperformance. 

Stocks are broadly firmer on the day and crude oil prices are a little stronger, implying a risk-friendly backdrop generally for investors. 

See – US Core PCE Bank Expectations: Fed preferred inflation measure to make little progress