US Dollar Forecast: DXY Holds Firm as PCE and Tariff Risks Cloud Outlook

U.S. Treasury yields are slipping, with the 10-year yield down 4 basis points to 4.334% and the 2-year at 3.99%. Markets are weighing the inflation implications of new 25% import tariffs announced by former President Trump, particularly on automobiles not made in the U.S. Further threats of higher tariffs on Canada and the EU have added to policy risk.

Although weekly jobless claims remained steady, and income and spending data are expected to show monthly gains of 0.4% and 0.7% respectively, the broader concern is how tariffs may keep inflation elevated. Fed officials remain divided, with Boston Fed’s Susan Collins warning of a short-term inflation spike, while others, like St. Louis Fed’s Alberto Musalem, see longer-lasting price pressures.

PCE in Focus as Core Inflation Pressures Persist

Economists expect the core PCE rate to edge up to 2.7% year-over-year, with a monthly rise of 0.4%. This contrasts with the softer CPI print earlier in the month, complicating the Fed’s inflation outlook. With consumer sentiment at a 12-year low and inflation expectations rising, the data may not ease pressure on policymakers.