USDInd breaks down ahead of US inflation data

• USDInd now trading at lowest since end-July
   
• Holiday season tends to see lighter trading activity
   
• Still, today's US inflation data release could trigger a pre-Christmas move for the greenback
   
• Softer-than-expected PCE deflators may send USDInd sharply lower

The dollar has made fresh cycle lows as markets head into the holiday period and a time of thin liquidity and volumes.

That means price action can be whippy with little rhyme or reason for the moves. Many big trading desks have wound up their positions, so staffing levels and activity are much lighter than normal.

The most important data release today will be the US November Personal Consumption Expenditures (PCE).

Consensus expects the Fed’s favoured inflation measure to have remained steady at +0.2% month-on-month (November 2023 vs. October 2023).

The year-on-year (November 2023 vs. November 2022) figure is expected to ease lower to 2.8%, and 3.3% for the Core PCE Deflator; both lower by 0.2 percentage points than October's year-on-year prints.

A softer than expected PCE Deflator report could see the dollar wave decisively goodbye to support around 102 and move sharply lower.

After all, there is currently a 14% chance of a rate cut at the first FOMC meeting of the year in late January, which rises to above 94.5% at its mid-March decision.

However, a surprise surge in inflationary pressures may force markets to push back bets for Fed rate cuts in 2024, while could offer some short-term relief for the US dollar.