With Slowing Growth Data, the U.S. Dollar Weakens as Risk Appetite Rises

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On Friday, the U.S. economy showed signs of cooling off, indicating a possible slowdown in growth and further reinforcing expectations of more moderate interest rate increases from the Federal Reserve.

The data released by the government revealed a decrease in the personal consumption expenditures (PCE) price index, which rose just 0.1% last month after increasing 0.4% in October, indicating a possible slowdown in economic growth. Expectations of more moderate interest rate increases from the Federal Reserve and a weakening U.S. dollar reinforced the deceleration.

According to Amo Sahota, executive director of FX consulting firm Klarity FX in San Francisco, “Stocks are feeling a little more comfortable today. There does not seem to be any panic.”

In October, the PCE index increased by 0.3% after rising by 0.2% without volatile food and energy components.

The so-called core PCE price index, which excludes the volatile food and energy components, rose 4.7% annually in November after increasing 5.0% in October. This indicates that consumer spending remains relatively healthy, although it is not growing at the same rate as earlier this year.

“The inflation data is improving, though not quickly enough, and the economy has not been adversely affected significantly.” Amo Sahota pointed out, “The economy is still growing slowly, and there are no signs that the economy is about to slow down.”

With the latest data indicating a slowdown in economic growth and expectations of more moderate interest rate increases from the Federal Reserve, wages may not rise as quickly as anticipated, or people may need more disposable income to spend on goods and services. This could result in slower economic growth if these trends continue.

Interest rates are widely expected to rise by just 25 basis points at the Federal Reserve’s next policy meeting in January. The Fed’s decision is expected to be closely watched by investors and consumers alike, given its implications for asset prices and borrowing costs across various areas, including mortgages, car loans and credit cards.

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