U.S. inflation, as measured by the key personal consumption expenditures (PCE) price index, rose 2.2% in August from a year earlier, according to a Friday report from the U.S. Bureau of Economic Analysis (BEA). This figure was slightly lower than market expectations of 2.3%. On a monthly basis, the PCE Price Index rose 0.1%, in line with analyst forecasts.
The core PCE price index, which excludes more volatile food and energy, rose 2.7% over the same period, in line with market consensus. The monthly growth rate of the core PCE price index was 0.1%, lower than expected.
market reaction
As the US dollar (USD) paid little attention to the PCE data release, the US dollar index (DXY) continued to underperform, widening its decline to around 100.40 on Thursday.
USD price today
The table below shows the percentage change of the US dollar (USD) against major currencies today. The US dollar was the strongest against the British pound.
US Dollar Euro Pound Yen Canadian Dollar Australian Dollar New Zealand Dollar Swiss Franc US Dollar 0.03% 0.04% -1.36% 0.03% -0.24% -0.20% -0.43% Euro -0.03% -0.00% -1.39% -0.04% -0.26% -0.24% -0.43% British Pound -0.04% 0.00% -1.38% -0.03% -0.26% -0.22% -0.45% Yen 1.36% 1.39% 1.38% 1.38% 1.13% 1.17% 0.98% Canadian Dollar -0.03% 0.04% 0.03% – 1.38% -0.29% – 0.20% -0.44% Australian Dollar 0.24% 0.26% 0.26% -1.13% 0.29% 0.05% -0.18% New Zealand Dollar 0.20% 0.24% 0.22% -1.17% 0.20% -0.05% -0.23% Swiss Franc 0.43% 0.43% 0.45% .98% 0.44% 0.18% 0.23%
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select USD from the left column and move along the horizontal line to Japanese Yen, the percentage change displayed in the box represents USD (base)/JPY (estimate).
This section below was published at 06:00 GMT as a preview of US PCE inflation data.
The core personal consumption expenditure price index is expected to rise 0.2% month-on-month and 2.7% year-on-year in August. Markets are already pricing in nearly 50 basis points of easing in the next two Federal Reserve meetings. A strong PCE result is unlikely to change the Fed’s policy stance.
The U.S. Bureau of Economic Analysis (BEA) is scheduled to release the key Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s recommended measure of inflation, on Friday at 12:30 pm Japan time.
While this PCE inflation data may impact the very near-term trajectory of the U.S. dollar (USD), it is highly unlikely to change the Fed’s policy on the interest rate path.
PCE Forecasts: Insights into the Fed’s Key Inflation Measure
The core PCE price index for August is expected to be in line with July’s numbers, rising 0.2% month-on-month. Core PCE over the past 12 months is expected to rise 2.7%, up slightly from July’s 2.6% rise.
This core PCE price index, which excludes the more volatile food and energy categories, plays a key role in shaping market expectations about the Federal Reserve’s interest rate outlook. This indicator is closely monitored by both central banks and market participants because it is not distorted by base effects and provides a clearer picture of underlying inflation by removing volatile elements. .
Regarding major PCE, the consensus forecast suggests that the downward trend will continue in August, with monthly PCE increasing by 0.1% (down from 0.2%) and annualized by 2.3% (down from 2.5%). ) is expected to rise.
While previewing the PCE inflation report, analysts at TD Securities argued: “Core PCE inflation was likely subdued in August, with prices rising at a moderate pace of 0.15% m/m, given that shelter price strength acted as a major driver of core CPI inflation The main PCE inflation rate may also have softened to 0.10% month-on-month.Separately, private consumption has moderated, increasing by 0.2% month-on-month. We expect it to increase by 0.1%.
How will the Personal Consumption Expenditure Price Index affect EUR/USD?
The Greenback is navigating the lower end of a multi-month range south of the 101.00 wall, with the first contention so far around 100.20.
After the Federal Reserve cut interest rates significantly at its Sept. 17-18 meeting, investors are now anticipating an easing of around 50 basis points for the rest of the year, and 100 to 125 basis points by the end of 2025. I think it will happen.
The surprise of the PCE announcement comes as market participants have already shifted their attention to next week’s key non-farm payrolls numbers as the Fed moves forward with a broad transition to the labor market that will negatively impact developments on inflation. should have little effect on price movements.
“Further upward momentum should motivate EUR/USD to face a year-to-date high of 1.1214 (September 25),” said Pablo Piovano, senior analyst at FX Street.com. If this area clears, the spot could sail towards the 2023 high of 1.1275 recorded on July 18th. ”
“On the downside, the September low of 1.1001 (September 11) appears to be reinforced by the provisional 55-day SMA of 1.1009 above the weekly low of 1.0949 (August 15),” Pablo added.
Finally, Pablo suggests that the pair’s constructive outlook should remain unchanged while it remains above the 200-day SMA of 1.0873.
economic indicators
Core Personal Consumption Expenditure – Price Index (Mom)
Core personal consumption expenditures (PCE), published monthly by the U.S. Bureau of Economic Analysis, measures changes in the prices of goods and services purchased by United States (US) consumers. The PCE price index is also the Federal Reserve’s recommended measure of inflation. Month-over-month figures compare the price of a product in the base month to the previous month. Core values exclude so-called more volatile food and energy components to more accurately measure price pressures. Generally, higher readings are bullish for the US dollar (USD), while lower readings are bearish.
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Frequently asked questions about inflation
Inflation measures the increase in the price of a representative basket of goods and services. Headline inflation is typically expressed as a percentage change on a month-over-month (MoM) and year-over-year (YoY) basis. Core inflation excludes more volatile components such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the number that economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level (usually around 2%).
The Consumer Price Index (CPI) measures the change in the price of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-over-month (MoM) and year-over-year (YoY) basis. Core CPI is a central bank target that excludes volatile food and fuel inputs. If core CPI rises above 2%, interest rates will typically rise, and vice versa if it falls below 2%. A rise in interest rates is good for the currency, so a rise in inflation usually results in a rise in the currency. The opposite is true when inflation falls.
It may seem counterintuitive, but when a country’s inflation rate is high, the value of its currency increases, and vice versa when its inflation rate is low. This is because central banks typically raise interest rates to combat rising inflation, which increases global capital inflows from investors looking for favorable places to park their money.
Previously, gold was an asset that investors looked to during times of high inflation because it maintained its value. Investors still often purchase gold as a safe-haven asset during times of extreme market turbulence, but this is not the case in most cases. . When inflation rises, central banks raise interest rates to counteract it. Rising interest rates are negative for gold because they increase the opportunity cost of holding gold as an interest-bearing asset or in a cash savings account. Conversely, lower inflation tends to be positive for gold as it lowers interest rates, making the bright metal a more viable investment option.
