US Dollar Index drops to near 98.00 amid caution ahead of US PCE inflation data

• The US Dollar Index faces slight selling pressure ahead of the US PCE inflation data for July on Friday.

• Traders are confident that the Fed will cut interest rates in the September policy meeting.

• Fed’s Williams argued that officials need to see economic data to decide on interest rates in September.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.12% lower to near 98.00 during the Asian trading session on Thursday. The US Dollar (USD) faces slight selling pressure as investors turn cautious ahead of the United States (US) Personal Consumption Expenditure Price Index (PCE) data for July, which is scheduled for Friday.

Economists expect the US core PCE inflation, which is closely tracked by Federal Reserve (Fed) officials as it strips off volatile items such as food and energy, to have risen at a faster pace of 2.9% on year against 2.8% in June. Month-on-month inflation is estimated to have grown steadily by 0.3%.

Investors will closely monitor the inflation data as it will influence market expectations for the Fed’s monetary policy outlook. According to the CME FedWatch tool, there is an 87% chance that the Fed will cut interest rates in the September monetary policy meeting.

On Wednesday, New York Fed Bank President John Williams stated in an interview with CNBC that officials need to see economic data to decide whether an interest rate cut is appropriate in the September policy meeting. "Risks are more in balance. We are going to just have to see how the data plays out," Williams said.

Meanwhile, the broader outlook of the US Dollar has remained under threat as US President Donald Trump has floated the termination letter of Fed Governor Lisa Cook over mortgage allegations, which has been seen as a serious attack on the central bank’s independence. In response, Cook has decided to file a lawsuit to keep her job.