After a brief period of gains, the greenback reversed course and returned to its characteristic devaluation path, as the latest Core PCE print, the Federal Reserve’s preferred gauge of inflation, showcased no material change and hinted that the US economy is indeed experiencing a stagflationary cycle.
Price pressures were unchanged in the month of August, indicating that Trump’s tariff policy has not yet made an impact on the US consumer, or its effects are rather insignificant.
The in-line with expectations PCE result practically solidified money markets’ views that the Federal Reserve will resume with cuts at the upcoming meetings, reinforcing analysts’ convictions.
Currently, markets are assigning a 90% probability for a 25bps rate cut at the October meeting and 65% chance is attributed for an equivalent magnitude move for the December meeting, which will drag the federal funds rate lower by a total of 50bps, to the 3.75% at years end.
We have to note nonetheless, the possibility that money markets’ projections will get challenged by the upcoming economic releases later this week, particularly from the employment side. Tomorrow, Tuesday markets await for the JOLTS job openings, Wednesday the ADP nonfarm employment data and last but not least, Friday’s NFP print for September.
Technical Analysis
DXY Chart – The greenback returns to devaluation mode after PCE print
Resistance: 98.20 (R1), 99.70 (R2), 102.20 (R3)
Support: 96.00 (S1), 95.00 (S2), 94.00 (S3)