The U.S. dollar strengthened across the board on Friday after newly released economic data suggested the Federal Reserve might not rush to implement large rate cuts.

Meanwhile, Wall Street took comfort in data highlighting the ongoing strength of U.S. consumers, who continue to be a vital driver of economic growth.

What Happened: The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditure (PCE) Price Index, halted its downward trend in July, though it remained below economists’ expectations.

The index held steady at a 2.5% year-over-year rate, the same as in June, slightly under the anticipated increase to 2.6%.

When volatile items like food and energy were excluded, the core PCE Price Index also remained unchanged at 2.6% on an annual basis, missing forecasts of a rise to 2.7%.

In addition to the inflation data, stronger-than-expected reports on personal income and spending further underscored the economy’s robustness.

Personal income rose by $75.1 billion, or 0.3% month-over-month in July, surpassing both the previous and expected increases of 0.2%.

On Thursday, government data revealed the U.S. economy expanded at an upwardly revised 3% annualized rate in the second quarter, a significant acceleration from the 1.4% growth in the first quarter. This revision was largely driven by a surge in consumer spending, which nearly doubled to 2.9%, up from 1.5% in the first quarter.

Why It Matters: The softer-than-expected PCE report suggests the Federal Reserve is likely to proceed with gradual rate cuts, which market participants have already largely priced in.

The latest data also signals less urgency for outsized or rapid cuts, as the underlying strength of the economy mitigates recession concerns that had emerged earlier in the month.

As a result, expectations for a 50-basis-point rate cut in September have diminished over the past two sessions, with market-implied odds dropping to 30%, according to the CME FedWatch tool.

Market Reactions

• The Invesco DB USD Index Bullish Fund ETF UUP, which tracks the U.S. dollar against a basket of currencies, gained 0.2% minutes after the market opened Friday.
• The stronger dollar put pressure on gold, as tracked by the SPDR Gold Trust GLD, which fell 0.2%.
• Small-cap stocks, tracked by the iShares Russell 2000 ETF IWM, were 0.4% higher.
• The tech-heavy Invesco QQQ Trust, Series 1 QQQ, rallied 0.9%.
• Sector-wise, the Technology Select Sector SPDR Fund XLK outperformed, climbing 0.8%.
• The Magnificent Seven stocks, tracked by the Roundhill Magnificent Seven ETF MAGS, rose 0.4%.
• Semiconductors rallied substantially, with the iShares Semiconductor ETF SOXX up 2.2%, buoyed by positive earnings report from MongoDB Inc. MDB and Marvell Technology Inc. MRVL

Read Now:

• Fitch Reaffirms US ‘AA+’ Credit Rating, Warns Of Growing Debt Burden: ‘Tax Cuts Will Be Extended Under Either Trump Or Harris’

Don’t miss the opportunity to dominate in a volatile market at the Benzinga SmallCAP Conference on Oct. 9-10 at the Chicago Marriott Downtown Magnificent Mile.

Get exclusive access to CEO presentations, 1:1 meetings with investors, and valuable insights from top financial experts. Whether you’re a trader, entrepreneur, or investor, this event offers unparalleled opportunities to grow your portfolio and network with industry leaders. Secure your spot and get your tickets today!

Photo: Shutterstock