Without a shadow of a doubt, the main attraction of the day and possibly the week, is the Federal Reserve’s preferred measure of assessing inflationary pressures, the Core PCE index, for the month of September.
The expected impact from President Trump’s harsh tariffs has not yet materialized, with inflationary pressures remaining somewhat stagnant round and about the 3% level, since the start of 2024. Even though price pressures float above the bank’s 2% target, market participants continue still to judge that they level poses no threats for the Federal Reserve and its policies.
September’s Core CPI is seen extending the trend, staying inactive at the 2.9% level and markets see policymakers marginalizing the result and focusing instead on labour market developments, when it comes to deploying monetary policy actions.
Money markets went as far as to almost fully price in a 25bps rate cut from the Fed at their upcoming decision on Wednesday and a cooler than expected Core PCE print could nudge forecasters to fully bake-in the cut and start assigning odds for a larger, 50bps rate reduction. The greenback thus is expected to face outflows and gold alongside equities extending their rebound rally.
On the flip side, should the inflation print showcase a surprise acceleration, materially above expectations (3.4%+) we would reasonably expect to see the odds for a cut dwindling and policymakers adopting a stance with hawkish tilt. The greenback thus is expected to strengthen against its counterparts and reap back some of its weekly loses, whereas US equities and gold facing outflows.
Technical Analysis
DXY Chart – The dollar index seeks to find support above the 98.2 level ahead of Core PCE print
Resistance: 100 (R1), 101.20 (R2), 102.40 (R3)
Support: 98.20 (S1), 97.20 (S2), 96.00 (S3)