Today, investors eyes will inevitably be drawn upon the Fed’s favourite inflation metric update, the Core PCE index, which will shed light onto how price pressures evolved within the US in the month of July, but more importantly what will the implications be for the trajectory of the Federal Funds rate during the remainder of the year.
According to expectations, Core PCE, in expected to record another one tenth of a percent uptick to the 2.9% level and move away from the bank’s 2% target for another month. Should that be the case we may see odds, for a 25bps rate cut in September, ease below 80% level, but nevertheless remain the prominent scenario ahead of next week’s NFP print. Should on the other hand, we observe inflationary pressures recording a cooldown, with the PCE dropping close to 2.5%, we may see money markets fully pricing in the 25bps cut scenario and start betting for a jumbo 50bps cut.
Meanwhile, Fed Governor Christopher Waller said highlighted his bias towards reducing rates in September and that he “fully expects” additional reductions to follow in order to bring policy closer to a neutral stance.
Equity traders are also betting that cuts will follow soon and standing by, eager to add fuel to the fire and push indices higher, reaching fresh highs.
Bond markets are holding their horses, awaiting for the data to somewhat clear out the path of rates which will then influence the level of the 10-year treasury yield, which has been hovering close to four-month lows during the week.
Technical Analysis
DXY Chart – The greenback enters consolidation mode near the $97 area ahead of PCE update
Resistance: 98.40 (R1), 99.70 (R2), 101.40 (R3)
Support: 97.10 (S1), 96.00 (S2), 94.80 (S3)