Inflationary pressures in the United States showed signs of easing in August, as measured by the Personal Consumption Expenditures (PCE) Price Index. According to the US Bureau of Economic Analysis (BEA), the headline PCE rose by 2.2% year-over-year in August, slightly below market expectations of 2.3%. On a monthly basis, the PCE Price Index increased by 0.1%, aligning with analysts’ predictions.
The core PCE Price Index, which excludes the more volatile categories of food and energy, rose by 2.7% over the same period, matching market consensus. Monthly growth in the core PCE Price Index was 0.1%, below expectations.
This moderation in inflationary pressures could provide some relief to the Federal Reserve as it navigates the ongoing economic landscape. While inflation remains above the central bank’s target of 2%, a slower rate of increase suggests that its monetary tightening policies may be starting to have the desired effect.
US Dollar Unfazed by PCE Data as Market Eyes Fed Rate Cuts
The US Dollar (USD) exhibited a muted response to the release of the Personal Consumption Expenditures (PCE) Price Index, a key inflation indicator closely watched by the Federal Reserve. The US Dollar Index (DXY) remained under pressure, extending its losses from the previous day to trade around 100.40.
Market participants had already factored in a significant rate cut of nearly 50 basis points across the next two Federal Reserve meetings. This expectation was largely solidified by recent economic data, suggesting that inflationary pressures might be easing. Consequently, a firm PCE reading was unlikely to alter the Fed’s stance on monetary policy.
The United States Bureau of Economic Analysis (BEA) was scheduled to release the PCE Price Index on Friday at 12:30 GMT. While this data could influence the short-term direction of the US Dollar, it was widely anticipated that the Fed’s overall path regarding interest rates would remain largely unaffected.
Source: create.vista.com
PCE Preview: Whispers Before the Fed’s Verdict
Market analysts are buzzing with anticipation ahead of the release of the Personal Consumption Expenditures (PCE) Price Index, a key metric guiding the Federal Reserve’s interest-rate decisions.
Core PCE Expectations: Projections point towards a 0.2% rise in the core PCE for August, mirroring July’s figures. Over the past year, analysts predict a slight increase to 2.7%, up from July’s 2.6%. This core index, excluding volatile food and energy prices, is crucial for shaping market expectations regarding the Fed’s monetary policy outlook. Both the Fed and investors value its stability, as it offers a clearer picture of underlying inflation by filtering out temporary price fluctuations.
Headline PCE Outlook: Consensus forecasts suggest a continued decline in the headline PCE for August. Analysts predict a monthly rise of 0.1%, down from 0.2% previously, and an annual increase of 2.3%, down from 2.5%.
Analysts’ Predictions: TD Securities offered their predictions for the report: “Core PCE inflation likely stayed controlled, with prices rising modestly at a 0.15% monthly rate. Inflation in the core PCE is projected to be lower compared to the core CPI due to less strength in shelter prices. Headline PCE inflation is also expected to be subdued, potentially reaching 0.10% monthly. Additionally, we anticipate a slight moderation in personal spending.”
EUR/USD Market Watch: With the US Dollar trading near the bottom of its multi-month range, analysts are focusing on potential Euro (EUR) strength against the Dollar (USD). Following the Fed’s significant rate cut in September, the market has already factored in roughly 50 basis points of further easing throughout the year, and potentially 100 to 125 basis points by 2025’s end.
Post-PCE Market Movement: A surprising PCE outcome is unlikely to significantly impact the Dollar’s price action. Investors have already shifted their focus to next week’s critical Nonfarm Payrolls data, reflecting the Fed’s current focus on the labor market rather than solely inflation.
EUR/USD Technical Outlook: Pablo Piovano, a Senior Analyst at FX Street.com, suggests a potential EUR/USD surge if the PCE data exceeds expectations. He predicts a possible challenge to the year-to-date peak of 1.1214, potentially followed by a further climb towards the 2023 high of 1.1275. However, Piovano also emphasizes crucial support levels at 1.1001 (September’s low) and the 200-day SMA (Simple Moving Average) at 1.0873. As long as EUR/USD maintains its position above the 200-day SMA, a bullish outlook remains likely.
This revised passage incorporates reported speech by summarizing analysts’ predictions and insights. It also provides a unique angle by focusing on both the PCE data and its potential impact on the EUR/USD market.
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