Weaker US GDP and PCE data, alongside dovish Fed remarks, curb the dollar’s rally after two weeks of gains.
The US dollar is poised for a second weekly advance but has stalled as softer economic data and dovish Federal Reserve commentary reverse recent hawkish repricing. Q1 GDP growth was revised downward, with consumer spending slowing to 0.5% from an initial 1.4%, driven by weaker services consumption.
Markets had priced in a more aggressive Fed stance, but New York Fed President John Williams’ remarks and cooling inflation expectations have tempered those bets. The dollar and Treasury yields dipped following the data, reflecting reduced rate hike odds.
Analysts expect the Fed to hold rates steady this year, with inflation projected to ease to 3.5% by year-end and reach the 2% target by 2028. The shift in sentiment suggests potential dollar weakness later in 2026 if inflation continues to moderate.