- US PCE inflation data came in softer than expected yesterday. Headline prices rose 0.3% in August and 3.4% over the year, against a 3.7% annual forecast. Core PCE rose 0.2% on the month and 3.0% annually, below forecasts of 0.3% and 3.3%. Earlier figures were also revised lower, so this was more than a small miss in one month’s data.
- An October US Fed hike now looks less likely. Markets reduced its implied probability to around 35% after the PCE release, compared with about 70% a week earlier. This lends support to New York Fed President Williams’ view that there is no urgency to hike again. However, core inflation at 3.0% remains above the Fed’s 2% target, so the fundamental case for further tightening has not disappeared.
- Interestingly, the US Dollar resisted the obvious initial bearish reaction. This can be seen as a significant sign in favour of the greenback. It briefly weakened after the PCE but recovered as Treasury yields climbed; the US 10-year yield finished near 5.29%. This is a good example of why a soft inflation reading does not guarantee a sustained Dollar selloff when yields keep rising.investinglive+1
- The EUR/USD currency pair reached a near 18-month low price yesterday and is trading near 1.1330 after a difficult September for the Euro. This is a significant breakdown for this currency pair which has historically tended to trend very reliably, so trend traders will want to be involved here on the short side.
- The Japanese Yen is weakening again. The USD/JPY has risen to around 158.10 after minutes from the Bank of Japan’s September meeting disappointed traders hoping for signs of another imminent rate hike. The pair has therefore returned to the area where the possibility of Japanese official intervention deserves attention. The Yen has been the weakest major currency so far today, while the Australian Dollar has been the strongest, putting the AUD/JPY currency cross in some focus.
- US stock markets finished mixed. Yesterday the Dow Jones Industrial Average fell by about 0.9% while the S&P 500 Index lost about 0.3%, and the Nasdaq Composite gained 0.2%. Today, Nasdaq 100 futures are up around 1% and S&P 500 futures about 0.6%, helped by Micron’s upbeat forecast.
- Gold failed to hold its post-PCE gain. It briefly traded above $4,200 after the inflation release, then fell back as the Dollar and yields recovered. Gold is near $4,170 this morning, while Silver is around $61.15. The rebound from Monday’s low is still alive, but a sustained move above $4,200 would make the bullish case more convincing.
- Crude Oil is lower today. WTI is around $89.10, down roughly 1.4%, amid hopes that recovering Middle East oil flows can be sustained. December Brent is below $97; that differs from the expiring November Brent contract, which settled above $103 yesterday. Traders should take care not to mistake a change of futures contract for an equivalent overnight collapse in the oil price.
- There will be another release of important US data tomorrow: non-farm payrolls, average hourly earnings, and the US unemployment rate. This could be important for the US Dollar is there is any major surprise.
Forex Today: Soft US PCE Cuts Fed Hike Bets, but Dollar Holds Firm
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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