Dollar Gains Before PCE Data as Euro Falls on German Retail Weakness

New York, May 30, 2025 - The U.S. dollar strengthened on Friday, with the Dollar Index climbing 0.3% to 99.510 by 03:00 ET, as investors awaited the release of the Personal Consumption Expenditure (PCE) Price Index, the Federal Reserve's preferred measure of inflation. The greenback's gains follow a turbulent week marked by uncertainty over U.S. trade policies, after a federal court reinstated President Donald Trump's tariffs on Thursday, reversing a previous block.

Meanwhile, the euro weakened, with EUR/USD dropping 0.3% to 1.1332, pressured by disappointing German retail sales data and cooling inflation across the eurozone, fueling expectations of another European Central Bank (ECB) rate cut in June.

Dollar Strength Amid Trade Policy Turmoil

The dollar's uptick comes after a late decline on Thursday, driven by renewed uncertainty over Trump's trade tariffs, which have prompted some investors to shift away from U.S. assets. Despite this, the Dollar Index is poised for a slight weekly gain, halting a streak of five consecutive losing weeks. The PCE data, due later today, is expected to show a 0.1% month-on-month rise in core inflation for April, up from a flat reading previously, while personal spending is forecasted to slow to 0.2% from 0.7%.

Analysts at ING highlighted that a weaker-than-expected spending figure could weigh on the dollar. Recent web data indicates that the Dollar Index has been volatile in May, with a 1.5% decline year-to-date, reflecting broader concerns about U.S. economic stability amidst trade policy shifts. Social media discussions reveal a cautious sentiment among traders, with many focusing on the PCE's potential to influence Fed rate cut expectations.

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Euro Under Pressure from Economic Data

In Europe, the euro faced downward pressure after German retail sales fell 1.1% in April, signaling sluggish economic activity in the eurozone's largest economy. Inflationary pressures also eased, with German state data showing subdued price growth and Spain's EU-harmonized inflation dropping to its lowest since October. These developments have heightened expectations of an ECB rate cut on June 5, potentially reducing the deposit facility rate to 2.00% from 2.25%, marking the ECB's eighth consecutive cut.

ING analysts noted that markets expect 58 basis points of ECB easing this year compared to 50 basis points for the Fed, suggesting limited shifts in EUR/USD interest rate differentials. The British pound also edged lower, with GBP/USD down 0.1% to 1.3480, though it remains on track for a 1.5% monthly gain, supported by the Bank of England's cautious approach to rate cuts amid persistent UK inflation.

Did You Know?
The Dollar Index, introduced in 1973, measures the U.S. dollar's value against a basket of six currencies, with the euro holding the largest weighting at 57.6%.

Asian Markets and Global Currency Movements

In Asia, the Japanese yen gained ground, with USD/JPY falling 0.2% to 143.88, driven by safe-haven demand and stronger-than-expected Tokyo consumer inflation data for May, a key indicator for national trends. This has raised the likelihood of a 25-basis-point rate hike by the Bank of Japan in July, though further hikes remain uncertain. Japanese industrial production and retail sales also exceeded expectations, bolstering the yen.

Meanwhile, USD/CNY rose 0.1% to 7.1949, showing little reaction to stalled U.S.-China trade talks, as confirmed by U.S. Treasury Secretary Scott Bessent. Recent web updates show Japan's core CPI rose 2.8% year-on-year in May, above the Bank of Japan's 2% target, adding pressure for monetary tightening. Social media buzz indicates growing trader interest in the yen as a safe-haven asset amid global uncertainties.