Dollar Index Steady as Trade Tensions Rise and Core PCE Inflation Nears Fed Target

Dollar Index Holds Steady Amid Trade Tensions and Cooling Inflation

Core PCE Nears Fed Target, Markets Eye Rate Path

The US Dollar Index (DXY) finished Friday's trading session unchanged from the previous day as investors digested moderating inflation and escalating trade rhetoric between Washington and Beijing.

The core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, slowed to 2.1% year-over-year in April, down from 2.3% in March—just a notch above the Fed’s 2% target.

Despite this cooling, markets are still pricing in no rate change through September, with expectations leaning toward two rate cuts by the end of the year.

Trade Tensions Mount After Trump’s Remarks

On the geopolitical front, President Donald Trump renewed criticism of China, claiming via a Truth Social post that Beijing has violated a prior trade agreement. This has reignited US-China trade concerns, further influencing dollar sentiment.

Currency Movements: Mixed Dollar Action

• The USD fell 0.3% against the Japanese Yen (JPY), showing safe-haven demand amid trade uncertainty.
• Meanwhile, the EUR/USD rose 0.2%, with the euro firming modestly on improving rate differentials and relative eurozone calm.

What to Watch Next

Markets are now turning attention to next week’s US labor market report, which may provide key insight into how monetary policy is impacting employment—a critical input for future Fed decisions.

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