Safe-haven demand keeps United States Dollar Index steady

• US Dollar Index holds steady as diplomatic efforts to end the Middle East conflict temper safe-haven demand.
• Resilient US economic figures and strong expectations of a Fed rate rise could underpin the US Dollar.
• A December rate rise carries a roughly 75% market-implied probability, according to the CME FedWatch Tool.

Near 102.00 during Monday’s Asian trading, the US Dollar Index (DXY) is holding steady following modest gains in the previous session. The index tracks the value of the US Dollar (USD) against six major currencies.

Diplomatic efforts to bring the Middle East conflict to an end have reduced demand for safe havens, leaving the Greenback little changed despite persistent concerns over renewed US military action against Iran. For a third consecutive day, Qatari and Iranian officials held talks aimed at reaching an agreement to end the war before the US midterm elections.

Growing expectations of a Federal Reserve rate rise could nevertheless help the US Dollar recover. Recent US macroeconomic releases have indicated a resilient economy and persistent inflation, bolstering rate expectations. The CME FedWatch Tool puts the probability priced in by traders for a December rate increase at roughly 75%.

Attention now turns to forthcoming releases, notably the US Nonfarm Payrolls (NFP) report and ISM manufacturing and services figures. Several Federal Reserve officials are also due to speak during the week, with their comments expected to provide further clues to the central bank’s monetary policy outlook.

US PCE figures shift the Dollar outlook as inflation progress stalls

The latest US September PCE release, according to Brown Brothers Harriman, “confirms that progress on inflation has stalled.” Describing the figures as consistent with consensus expectations, the bank says “headline PCE rose 0.5% m/m vs. +0.3% in August to be up 3.6% y/y vs. 3.4% in August,” while “core PCE was up 0.3% m/m vs. 0.3% in August to be up 3.1% y/y vs. 3.0% in August.” Although market attention is moving towards wage trends and the broader growth outlook, the persistence of both headline and core inflation strengthens the bank’s view that stalled disinflation continues to support the Dollar.