- The underlying personal consumption expenditure price index is expected to rise 0.3% month-on-month and 2.8% year-on-year in October.
- Markets are undecided whether the Fed will cut the policy rate by 25 basis points at the next policy meeting.
- Annual PCE inflation is forecast to rise to 2.3% from 2.1% in October.
The US Bureau of Economic Analysis (BEA) will release Personal Consumption Expenditure (PCE) Price Index data for October on Wednesday at 13:30 GMT. This index is the Federal Reserve’s preferred measure of inflation.
Although PCE inflation data is usually a big market driver, this time it could be difficult to assess its impact on the valuation of the US Dollar (USD). With the United States entering the Thanksgiving holiday on Thursday, other macroeconomic data – such as weekly initial jobless claims, October durable goods orders and the second estimate of third-quarter gross domestic product (GDP) – They will be published together with the PCE inflation figures.
Anticipating PCE: Insights on the Fed’s key inflation metric
The core PCE price index, which excludes volatile food and energy prices, is projected to rise 0.3% month-on-month in October, matching September’s increase. Over the past twelve months, core PCE inflation is expected to rise to 2.8% from 2.7%. Meanwhile, annual headline PCE inflation is forecast to rise to 2.3% from 2.1% in the same period.
At the November monetary policy meeting, the Federal Reserve (Fed) decided to reduce the policy rate by 25 basis points (bp) to the range of 4.5%-4.75%. In the policy statement, the U.S. central bank made a small adjustment to say that inflation “has made progress” toward the Fed’s target, compared to “it has made further progress” in the previous statement. Additionally, the Fed noted that core PCE inflation has shown little change over the past three months.
In previewing the PCE inflation report, TD Securities said: “Overall PCE prices are likely to have increased at a steady 0.27% monthly, with core rising 0.31% monthly and inflation supercore accelerating to 0.39% monthly.”. “Separately, we expect consumer spending to start the fourth quarter on a soft note, rising 0.3% month-over-month in nominal terms in October and nearly flat in real terms,” ​​TD Securities added in a recently released report.
The CME Group’s FedWatch tool shows that markets are currently pricing in nearly 41% the probability that the Fed will keep the policy rate unchanged at the last policy meeting of the year, suggesting that the US dollar faces a risk bidirectional facing the event.
economic indicator
Personal consumption expenditure – price index (MoM)
Personal spending published by the office Bureau of Economic Analysis It is an indicator that measures the total expenditure of individuals. The level of spending can be used as an indicator of consumer optimism. It is also considered a measure of economic growth since while personal spending stimulates inflationary pressures it can lead to an increase in interest rates. A result above expectations is bullish for the dollar, while a reading below consensus is bearish.
Next post:
Wed Nov 27, 2024 1:30 p.m.
Frequency:
Monthly
Dear:
0.2%
Previous:
0.2%
Fountain:
US Bureau of Economic Analysis
How will the Personal Consumption Expenditure Price Index affect the EUR/USD?
Market participants could reduce bets on a rate cut in December in case the monthly core PCE price index rises at a stronger pace than expected. In this scenario, the USD could strengthen and make it difficult for EUR/USD to hold. Conversely, an increase in the monthly core PCE price index of 0.2% or less could reignite optimism about further progress in disinflation and weigh on the USD with the immediate reaction, opening the door for a rebound of the pair in the short term.
Eren Sengezer, Lead Analyst for the European Session at FXStreet, shares a brief technical outlook for EUR/USD:
“The Relative Strength Index (RSI) indicator on the daily chart remains well below 50, while holding above 30, suggesting that EUR/USD has more room to the downside before becoming technically oversold. “
“On the downside, 1.0400 (static level) is lined up as first support. In case EUR/USD closes below this level and starts using it as resistance, 1.0330 (Nov 22 low) could act as interim support before 1.0230 (static level for November 2022). Looking north, the first resistance could be located at 1.0600 (static level) before 1.0600 (static level for November 2022). 1.0660 (20-day simple moving average). If EUR/USD clears this last hurdle, it could target 1.0800 (static level) next.”
The US Dollar FAQs
The United States Dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions. After World War II, the USD took over from the pound sterling as the world’s reserve currency.
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
