Inflation in the US, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, edged higher to 2.3% on a yearly basis in October from 2.1% in September, the US Bureau of Economic Analysis (BEA) reported on Wednesday.
Follow our live coverage of the US PCE inflation report and the market reaction.
The core PCE Price Index, which excludes volatile food and energy prices, increased 2.8% in the same period, up from 2.7% in September and in line with analysts' estimate. The core PCE Price Index rose 0.3% on a monthly basis, as anticipated.
Market reaction to PCE inflation data
The US Dollar Index recovers modestly from the daily lows after this data but remains in negative territory. At the time of press, the index was down 0.55% on the day at 106.30.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.59% | -0.65% | -1.02% | -0.15% | -0.43% | -1.21% | -0.44% | |
| EUR | 0.59% | -0.07% | -0.42% | 0.44% | 0.17% | -0.63% | 0.17% | |
| GBP | 0.65% | 0.07% | -0.34% | 0.51% | 0.24% | -0.55% | 0.22% | |
| JPY | 1.02% | 0.42% | 0.34% | 0.86% | 0.59% | -0.21% | 0.57% | |
| CAD | 0.15% | -0.44% | -0.51% | -0.86% | -0.28% | -1.06% | -0.29% | |
| AUD | 0.43% | -0.17% | -0.24% | -0.59% | 0.28% | -0.79% | -0.03% | |
| NZD | 1.21% | 0.63% | 0.55% | 0.21% | 1.06% | 0.79% | 0.78% | |
| CHF | 0.44% | -0.17% | -0.22% | -0.57% | 0.29% | 0.03% | -0.78% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
This section below was published as a preview of the US Personal Consumption Expenditures (PCE) Price Index data for October at 07:00 GMT.
- The core Personal Consumption Expenditures Price Index is expected to rise 0.3% MoM and 2.8% YoY in October.
- Markets are undecided on whether the Fed will lower the policy rate by 25 basis points at the next policy meeting.
- Annual PCE inflation is forecast to edge higher to 2.3% from 2.1% in October.
The United States Bureau of Economic Analysis (BEA) is set to release the Personal Consumption Expenditures (PCE) Price Index data for October on Wednesday at 15:00 GMT. This index is the Federal Reserve’s preferred measure of inflation.
Although PCE inflation data is usually seen as a big market-mover, this time it might be difficult to assess its impact on the US Dollar’s (USD) valuation. With the US entering the Thanksgiving holiday on Thursday, other macroeconomic data –such as the weekly Initial Jobless Claims, October Durable Goods Orders and the second estimate of the third-quarter Gross Domestic Product (GDP)– will be released alongside the PCE inflation figures.
Anticipating the PCE: Insights into the Federal Reserve's key inflation metric
The core PCE Price Index, which excludes volatile food and energy prices, is projected to rise 0.3% on a monthly basis in October, matching September’s increase. Over the last twelve months, the core PCE inflation is expected to edge higher to 2.8% from 2.7%. Meanwhile, the headline annual PCE inflation is seen rising to 2.3% from 2.1% in the same period.
At the November policy meeting, the Federal Reserve (Fed) decided to lower the policy rate by 25 basis points (bps) to the range of 4.5%-4.75%. In the policy statement, the US central bank made a small adjustment to say inflation "made progress" towards the Fed’s target, compared to “made further progress” in the previous statement. Additionally, the Fed noted that the core PCE inflation has shown little change over the past three months.
Previewing the PCE inflation report, TD Securities said: “Headline PCE prices likely rose at a firm 0.27% m/m pace, with core rising 0.31% m/m and supercore inflation accelerating to 0.39% m/m.”. “Separately, we look for consumer spending to start Q4 with a soft tone, rising 0.3% m/m in nominal terms in October and close to flat in real terms,” added TD Securities in a recently published report.
The CME Group FedWatch Tool shows that markets are currently pricing in a nearly 41% probability of the Fed holding the policy rate unchanged at the last policy meeting of the year, suggesting that the US Dollar is facing a two-way risk heading into the event.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
How will the Personal Consumption Expenditures Price Index affect EUR/USD?
Market participants could scale back bets on a December rate cut in case the monthly core PCE Price Index rises at a stronger pace than expected. In this scenario, the USD could gather strength and make it difficult for EUR/USD to hold its ground. Conversely, a monthly core PCE Price Index increase of 0.2% or lower could revive optimism about further progress in disinflation and weigh on the USD with the immediate reaction, opening the door for a rebound in the pair in the near term.
Eren Sengezer, European Session Lead Analyst 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 on the downside before turning technically oversold.”
“On the downside, 1.0400 (static level) aligns as first support. In case EUR/USD makes a daily close below this level and starts using it as resistance, 1.0330 (November 22 low) could act as interim support before 1.0230 (static level from November 2022). Looking north, the first resistance could be spotted at 1.0600 (static level) ahead of 1.0660 (20-day Simple Moving Average). If EUR/USD clears that latter hurdle, it could target 1.0800 (static level) next.”
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