Gold and Dollar analysis: Forex Friday – January 26, 2024

• Gold analysis: Metal remains in holding pattern

• Dollar analysis: FOMC, BoE and NFP among next week’s highlights

• PCE inflation and consumer spending data keeping USD bears at bay

Thanks to the positive risk tone across financial markets, the US dollar has struggled to hold onto its gains made in response to mostly positive data showing a resilient economy. Yet, it hasn’t sold off either, with many traders expecting the FOMC and its Chairman Jerome Powell to push back against early rate cut bets next week. For this exact reason, gold has been unable to find any lasting support, with traders happy to take quick profits in either direction, even if the long-term bullish trend remains intact. Today’s core PCE index was a touch weaker, but it was kind of expected after the GDP deflator came in softer the day before. However, consumer spending rose more than expected in December, and income was line. Adding to the fact we had a stronger GDP print the day before, plus several other positive macro releases lately, the dollar bears will find it difficult to justify pushing the greenback markedly lower from these levels until such a time we see significant data misses from, or big beats from outside of, the US. Let’s see if next week brings a real change.

Dollar analysis: PCE inflation and consumer spending data keeping USD bears at bay

Today’s key data release failed to offer any conclusive direction for the dollar. Following yesterday’s release of a weaker GDP deflator, it was always expected that the PCE data would also come in a bit weaker, and so it proved. However, if you exclude energy and housing from the PCE data, this measure of inflation was up 0.3% month-on-month, which is not something that would appease the doves in the FOMC camp. Correspondingly, the dollar rose a little off its earlier lows following the data release, helped along by the fact that we had stronger consumer spending data released at the same time.

The Dollar Index (DXY) is therefore still stuck between a rock and a hard place, as per the highlighted support (blue shade) and resistance (orange shade) regions on the chart

In case you missed it, the PCE core inflation data showed an annual rise of 2.9% in December compared to 3.0% expected and +3.2% in the prior month. The headline PCE Price Index was in line and unchanged from the previous month at +2.6% year-over-year.  On a month-over-month basis, core PCE was in line at +0.2% compared to +0.1% last month.

There was more evidence of a strong consumer as spending rose more than expected in December. Personal spending was up 0.7% vs +0.4% expected, rising from the prior month’s upwardly revised +0.4% (from +0.2%). What’s more, real personal spending came in at +0.5% m/m vs 0.5% prior (revised from +0.3%). Consumer spending was in line at +0.3% as expected, following the previous month’s +0.4% print.