Breaking: US Core PCE inflation softens to 3.7% as expected
|Inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, was 3.4% on a yearly basis in September, the US Bureau of Economic Analysis reported on Friday. This reading matched the August reading (revised from 3.5%) and came in line with the market expectation.
The annual Core PCE Price Index, the Federal Reserve's preferred gauge of inflation, rose 3.7%, a slightly softer pace than the 3.8% (revised from 3.9%) increase recorded in August. On a monthly basis, the PCE Price Index and the Core PCE Price Index increased 0.4% and 0.3%, respectively.
Other details of the report revealed that Personal Spending increased by 0.7% on a monthly basis in September, while Personal Income rose by 0.3%.
Market reaction to US PCE inflation data
These figures don't seem to be having a noticeable impact on the US Dollar's valuation. At the time of press, the US Dollar Index was up 0.1% on the day at 106.72.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.19% | 0.16% | 0.07% | -0.25% | -0.30% | 0.03% | 0.24% | |
| EUR | -0.20% | -0.02% | -0.14% | -0.45% | -0.50% | -0.17% | 0.04% | |
| GBP | -0.17% | 0.02% | -0.11% | -0.43% | -0.47% | -0.12% | 0.04% | |
| CAD | -0.07% | 0.12% | 0.09% | -0.35% | -0.38% | -0.04% | 0.16% | |
| AUD | 0.28% | 0.47% | 0.45% | 0.35% | -0.03% | 0.31% | 0.50% | |
| JPY | 0.30% | 0.47% | 0.47% | 0.35% | 0.07% | 0.39% | 0.52% | |
| NZD | -0.03% | 0.15% | 0.16% | 0.04% | -0.31% | -0.34% | 0.22% | |
| CHF | -0.24% | -0.05% | -0.07% | -0.18% | -0.50% | -0.54% | -0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Economic Indicator
United States Core Personal Consumption Expenditures - Price Index (MoM)
The Core Personal Consumption Expenditures released by the US Bureau of Economic Analysis is an average amount of money that consumers spend in a month. "Core" excludes seasonally volatile products such as food and energy in order to capture an accurate calculation of the expenditure. It is a significant indicator of inflation. A high reading is bullish for the USD, while a low reading is bearish.
Read more.Why it matters to traders
After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.
This section below was published as a preview of the US PCE inflation report at 07:00 GMT.
- The Core Personal Consumption Expenditures Price Index is forecast to rise 0.3% MoM and 3.7% YoY in September.
- The Federal Reserve’s Summary of Economic Projections pointed to one more rate hike in 2023.
- Markets could overlook PCE inflation data following Thursday’s GDP report.
The Core Personal Consumption Expenditures (PCE) Price Index, the US Federal Reserve’s (Fed) preferred inflation gauge, will be released by the US Bureau of Economic Analysis (BEA) at 12:30 GMT.
What to expect in the Federal Reserve’s preferred PCE inflation report?
The Core Personal Consumption Expenditures (PCE) Price Index, which excludes food and energy, is forecast to rise 0.3% in September on month, at a stronger pace than the 0.1% increase recorded in August. The annual Core PCE Price Index is seen rising 3.7%, slowing from the 3.9% increase registered in August.
The headline PCE Price Index is expected to grow 0.3% MoM in September, while the annual PCE inflation is anticipated to edge lower to 3.4% from 3.5% in August.
The United States’ real Gross Domestic Product grew at an annualized rate of 4.9% in the third quarter, the BEA reported on Thursday. Details of the publication showed that the PCE inflation rose to 2.9% from 2.5% on a quarterly basis in Q3, while the Core PCE inflation declined to 2.4% from 3.7% in the second quarter.
While speaking before the Economic Club of New York in early October, Federal Reserve Chairman Jerome Powell said that the lower inflation readings in the summer were very favorable but noted that the September data was “somewhat less encouraging,” regarding the Consumer Price Index (CPI) figures.
When will be the PCE inflation report released and how could it affect EUR/USD?
The PCE inflation report is due at 12:30 GMT. Since markets already had a glimpse into the PCE figures in the third-quarter GDP report, the reaction is likely to remain muted.
Although the Fed's latest Summary of Projections, published in September, showed that policymakers saw it appropriate to raise the policy rate again before the end of the year, the CME Group FedWatch Tool shows that investors are pricing in a more than 70% probability that the Fed will hold the interest rate steady in 2023. The upcoming September PCE inflation report is unlikely to alter the market positioning in a significant way. Until the Fed’s December policy meeting, investors will have CPI inflation and employment data for October and November to confirm or deny whether the Fed’s tightening cycle has come to an end.
FXStreet Analyst Eren Sengezer offers a brief technical outlook for EUR/USD and explains: “EUR/USD remains technically bearish in the near term, with the Relative Strength Index (RSI) indicator on the daily chart edging lower toward 40. Additionally, the pair closed below the 20-day Simple Moving Average (SMA) on Thursday after managing to hold above that level in the previous five trading days.”
Eren also highlights the important technical levels for EUR/USD: “On the downside, 1.0500 (psychological level) aligns as immediate support before 1.0450 (2023 low set in March) and 1.0400 (psychological level, static level). In case the pair stabilizes above 1.0570 (20-day SMA), buyers could show interest in a technical recovery. In this scenario, 1.0650 (Fibonacci 23.6% retracement of the July-October downtrend, 50-day SMA) could be seen as the next resistance ahead of 1.0700 (psychological level, static level).
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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