PCE cooled to 3.3%. DXY broke 100. Week closed dovish.

Catalyst check. Friday July 31. US PCE inflation at 8:30 AM ET: core PCE 3.3 percent year-over-year, down from May's 3.4 percent; core PCE +0.1 percent month-over-month vs +0.2 percent consensus, down from May's +0.3 percent. Personal Income +0.4 percent, Personal Spending +0.3 percent. Fed communications reopen: two regional Bank presidents delivered dovish-leaning remarks in the morning session. All dates verified against BEA and Fed calendars.

The tape

Friday closed the week with a decisive dovish move that validated Wednesday's FOMC press-conference read. Core PCE softening below consensus produced a broad USD selloff, gold gave back some of Thursday's gains as real yields rose modestly, and USD/JPY continued lower in the aftermath of Thursday's suspected intervention.

• DXY: 99.71, down 43 pips from Thursday's 100.14. First close below 100 since May. Cumulative weekly decline: -175 pips from Monday's 101.48.
• 10-year yield: 4.7290 percent, up 5.7bp from Thursday's 4.6724. Continued to price the term-premium expansion from the Warsh credibility discount. The yield rise despite dovish PCE is unusual and points to the long-end being driven by structural factors rather than by inflation expectations.
• Gold: $4,047, down $59 (-1.44 percent) from Thursday's $4,106. Real yields rose materially (nominal +5.7bp, breakevens down modestly on soft PCE); real yields likely up 7-8bp, decisively weighing on gold.
• USD/JPY: 157.42, down 277 pips from Thursday's 160.19. Continued the intervention-driven yen strength; suspected additional MOF operation in the London session took the pair to a new lower range low. First close below 158 since May.
• EUR/USD: 1.1529, up 6 pips from 1.1523. Marginal continuation.
• Brent CFD spot: $87.40, up $0.48 (+0.55 percent). Flat consolidation.
• GBP/USD: 1.3480, up 20 pips from 1.3460.

The PCE print in context

Core PCE at 3.3 percent year-over-year is down one tenth from May's 3.4 percent. The month-over-month reading at +0.1 percent (vs +0.2 percent consensus, +0.3 percent prior) is the specific print that matters for the Fed reaction function: three consecutive months of core PCE MoM at 0.2 percent or below would put the six-month annualized rate at approximately 2.5 percent, well within striking distance of the Fed's 2 percent target. The current reading is the third such month.

Under the PCE vs CPI reference, the specific formulation the market watches is the six-month annualized core PCE rate, which is now approximately 2.6 percent. This is the lowest reading of the current cycle and materially below the 3.3 percent year-over-year rate that gets the headlines. Under the Fed's reaction function, the six-month annualized rate is the more consequential input; the year-over-year rate lags because it includes older months when inflation was higher.

The specific implication: the Fed's stated rationale for holding rates ("prices are too high") is becoming harder to sustain as PCE prints keep coming in soft. The dovish read from Wednesday's Warsh press conference gains support from Friday's data.

The DXY sub-100 close

DXY closing below 100 for the first time since May is a specific technical event. The 100 level had held on multiple intraday tests through June and July; the July 31 daily settlement below is the first decisive break of the psychological floor. Under standard price-action framing, this promotes 100 from support to resistance and opens the range toward 98-99 as the next downside target.

Whether the break holds depends on the following Monday-Tuesday tape. A quick reclaim above 100 would flag the Friday close as a technical overshoot on the PCE-plus-intervention-flow combination. A Monday close below 99.50 would confirm the break and open a wider trading range for the coming weeks.

The weekly recap

Five sessions delivered a decisive dovish resolution:

• Monday Jul 27: Iran de-escalation crashed Brent -8 percent; FedWatch hike probability spiked to 34 percent on labor-market strength.
• Tuesday Jul 28: pre-FOMC positioning; JOLTS softening walked hike probability back to 22 percent.
• Wednesday Jul 29: FOMC 9-3 hold; Warsh Q&A read as dovish despite hawkish written statement.
• Thursday Jul 30: MOF suspected intervention; USDJPY 576-pip intraday range.
• Friday Jul 31: PCE softening; DXY broke 100.

Net weekly moves:

• DXY: 101.48 (Monday) to 99.71 (Friday), -177 pips (-1.74 percent) on the week.
• 10Y yield: 4.6465 (Monday) to 4.7290 (Friday), +8.25bp on the week despite the dovish overall read (term-premium repricing).
• Gold: $4,073 (Monday) to $4,047 (Friday), -$26 on the week.
• USD/JPY: 163.78 (Monday) to 157.42 (Friday), -636 pips (-3.88 percent) on the week (MOF intervention driven).
• Brent: $85.32 (Monday) to $87.40 (Friday), +$2.08 (+2.44 percent) on the week (recovery from the Iran-de-escalation low).
• EUR/USD: 1.1369 (Monday) to 1.1529 (Friday), +160 pips on the week.

The week priced a decisive dovish shift in the Fed reaction function, an intervention-driven yen strength event, and continued unwind of the Iran premium. The combination is the strongest dovish setup for the dollar in over three months.

Setup update

Working thesis reweighted materially. Dovish hold rises to 40 percent (from 30). Persistent-split at 25 percent (down from 30). Hawkish-tilt-with-hike-risk drops to 15 percent (from 25). Language-following at 15 percent. Intervention-driven yen strength continues to hold at 10 percent probability of extending materially. The distribution has migrated decisively toward the dovish end of the range.

Confirmed if: Monday-Tuesday hold Friday's ranges. DXY stays below 100.50. USD/JPY holds 156-160. 10Y stays 4.65-4.75.

Invalidated if: A hot data print in the coming week reverses the dovish trajectory. Post-meeting Fed speeches deliver hawkish pushback. DXY reclaims above 101.

Watch next week: Monday August 3 brings ISM Manufacturing at 10:00 AM ET (a manufacturing-side check on the growth trajectory). Tuesday August 4 brings ISM Services at 10:00 AM ET (the more important sector). Wednesday August 5 has ADP employment. Thursday August 6 has Weekly Initial Jobless Claims. Friday August 8 has NFP for the July reference month. The NFP print is the highest-signal event of the following week for confirming or reversing the dovish dovish shift.

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