- US PCE inflation is the priority today. The August report is due at 12:30 GMT, after this item is published. Economists expect both headline and core PCE prices to rise by 0.3% month-on-month, leaving their annual rates at 3.7% and 3.3%, respectively—still well above the Fed’s 2% target. A higher-than-expected core reading would strengthen the case for another hike and could support the US Dollar and Treasury yields; a softer reading could have the opposite effect.
- Fed officials disagree over how soon to act. Williams said yesterday that there is “no need for urgency” after September’s rate hike. He thinks one further increase may be appropriate late this year but wants to assess incoming data first. By contrast, Fed Governor Michael Barr said further tightening is likely to be needed, while Chicago Fed President Austan Goolsbee warned that allowing inflation to remain above target for so long is “playing with fire.”
- October rate-hike expectations have fallen. Following Williams’ remarks and weaker US data, the market-implied probability of an October hike dropped to 45%, from nearly 70% earlier yesterday. That makes today’s PCE release especially consequential: it could move expectations decisively in either direction.
- Australian inflation came in lower than expected and the Aussie fell accordingly. Annual CPI increased from 3.5% to 4.0% in August, partly because of higher fuel prices. However, the RBA’s trimmed-mean measure rose just 0.2% on the month, below the 0.3% forecast. AUD/USD fell towards $0.6964 as traders judged the underlying reading less supportive of another near-term RBA hike.
- The US Dollar is slipping a little, and the Japanese Yen has recovered. The Dollar has made a 1-Year low in EUR/USD, which will attract trend traders short, although it is rebounding today. USD/JPY has fallen towards 156.40 after trading near 158.00 recently, so traders should be cautious about assuming that broad Dollar strength will lift every Dollar pair.
- Gold has rebounded as oil falls. Gold has recovered from Monday’s sharp decline towards $4,110 but remains below $4,200 ahead of PCE. Crude oil fell sharply yesterday following news of a further US Strategic Petroleum Reserve release, helping to ease immediate inflation fears. Both markets could move strongly if PCE surprises.
- US stocks remain below their recent highs. The S&P 500 slipped 0.16% yesterday, while the Nasdaq Composite lost 0.09%. A soft PCE figure could relieve some pressure from high Treasury yields and support equities, but a hot reading would make another Fed hike harder for stock traders to ignore.
Forex Today: US PCE Inflation Significant as Fed Officials Split on Next Hike
Chief Analyst and Director of ContentAdam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked with...
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Chief Analyst and Director of ContentAdam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
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