FX.co ★ Dollar strengthens

The preferred inflation index used by the Federal Reserve; the core Personal Consumption Expenditures (PCE) index, jumped to its highest value since last summer. In January, the index increased 0.6% from the previous month, bringing PCE to an annualized rate of 5.382%. Friday's PCE report was the result of rising consumer spending after a sharp decline at the end of last year.

Personal income increased $131.1 billion (0.6 percent) in January, according to estimates released by the Bureau of Economic Analysis (BEA). Disposable personal income (DPI) increased $387.4 billion (2.0 percent) and personal consumption expenditures (PCE) index increased $312.5 billion (1.8 percent). The price index for fixed assets increased by 0.6 percent. The net result was a strong fall in U.S. stocks and precious metals, as well as an increase in the yields of U.S. Treasury bonds and the dollar.

This raises expectations that the Federal Reserve will raise rates by a quarter point at the next three FOMC meetings. And market participants' expectations are also growing that the federal funds rate will move to a higher target level than 5.1%.

Most importantly, the report confirmed that the components of inflation remain resilient. This comes after the Federal Reserve's tight monetary policy, which has raised rates in the last eight consecutive FOMC meetings.

The Fed raised its base rate from almost zero in March 2022 to 4.5%–4.75% last month. It also increased the likelihood of a rate hike of a percent at the next FOMC meeting in March. According to the CME's Fedwatch tool, the probability of such an outcome is 27%.

Friday's PCE report created even more bearish sentiment and pressure on precious metals. At the same time, the U.S. dollar strengthened.