The dollar is on the ropes, having erased its gains for 2020 versus a basket of currencies. The reversal stems from the Federal Reserve’s apparent resolve to keep printing money at the current pace despite signs of an economic and inflation rebound.
Fed officials mostly dismiss higher prices as transitory and stemming from base effects. That view will be tested on May 28 by the latest reading of the personal consumption expenditures (PCE) index.
The core PCE, excluding food and energy, is the Fed’s preferred inflation measure for its 2% flexible average target. It was up 1.8% in the 12 months to March.
If the Fed sticks to its guns even in the face of a blowout PCE print, the dollar could lurch lower still. That should add fuel to the commodity rally and boost equity sentiment. But watch the crypto market – a repeat of this week’s wobbles could bring back the safe-haven bid.