Analysts at Scotiabank provide insights into the outlook for the US Dollar (USD) as it experiences a dip while markets position themselves ahead of core PCE data.

The USD appears vulnerable to further losses in a broader context, as the DXY struggles to make significant gains beyond the 103.50 area. This was a key point highlighted earlier in the week, emphasizing the necessity for the index to surpass this level to initiate a rally.

Projections for US Personal Income indicate a forecasted increase of 0.3% in December, accompanied by a 0.5% rise in Spending for the month. Despite these figures, the core PCE deflator is anticipated to decrease to 3.0% YoY from November’s 3.2%.

The expectation of a slowdown in inflation could fuel market speculation about potential rate cuts by the Federal Reserve in the upcoming months. While soft data may contribute to a minor decline in the USD, it remains uncertain if the recent rebound of the USD in early 2024 will continue. Scotiabank is cautious about ruling out the possibility of a further extension of the USD’s rebound.