Dollar Outlook: After the core PCE data reached the standard, the dollar index's gains stalled near the resistance level

On Friday (September 26), after the release of the August Core Personal Consumption Expenditure Price Index (Core PCE) data, the US Dollar Index (DXY) still weakened slightly despite the stickiness of inflation and consumer spending exceeding expectations. The index retreated from the intraday high of 98.605, which was slightly below the double peak resistance levels of 98.635 and 98.834, reflecting the market's hesitation around key technical levels.

The dollar index has rallied from a low of 96.218 on the day of the last Fed policy statement and is now within the key Fibonacci retracement range of 98.238 to 98.714, which corresponds to the 50-61.8 per cent retracement in the broad range of 100.257 to 96.218. It is worth noting that the dollar index is still above the 50-day moving average of 98.024 - as long as it holds this level, the market remains bullish.

With core PCE inflation at 2.9 per cent - what next for Fed policy?

August's core PCE, the Fed's preferred measure of inflation, rose 0.2% month-on-month and 2.9% year-on-year, both in line with expectations. The headline PCE index rose 0.3% month-on-month, pushing annual inflation to 2.7%. These results are in line with market expectations and have limited impact on the Fed's current interest rate outlook.

Consumer resilience was equally striking: personal income rose 0.4 per cent month-on-month and personal spending surged 0.6 per cent month-on-month, both beating consensus expectations by 0.1 percentage points. The data reinforced the view that US consumer dynamism remains strong despite high inflation and persistent tariff-related pressures.

Treasury yields have stabilized, and the market still expects two more rate cuts

Bond markets reacted muted to the data, with the yield on the 10-year US Treasury edging down to 4.168 per cent and the yield on the two-year bond falling to 3.649 per cent. The muted reaction suggested that the inflation data had been well digested by the market. Importantly, initial jobless claims fell to 218,000 for the week, well below the 235,000 predicted by Dow Jones, while US gross domestic product growth in the third quarter was revised upwards to an annualised 3.8 per cent.

Such data both underline the resilience of the US economy and complicate the Fed's future policy path. Traders remain confident that the Fed will cut rates again in October, and most expect another cut before the end of the year, according to the CME Fed Watch tool.

Market Outlook: Dollar bulls face a test of key resistance levels

The rally in the dollar index has lost momentum near 98.714, the upper part of the Fibonacci retracement range, while technical and fundamental resistance are superimposed. A clear break above 98.834 would open the path for the dollar index to move towards the psychological level of 100.00. However, if it is sorted below 98.238, the risk of the dollar index reversing to the 50-day moving average of 98.024 will increase.

As long as the Federal Reserve maintains a cautiously accommodative stance and inflation remains above target, the dollar could find support. But for now, dollar bulls may need stronger data - or new policy signals - to break through resistance definitively.

At 23:23 Beijing time, the US dollar index was trading at 98.226/246, down 0.22%.