In what may now be considered the new trend, the United States Dollar is trading on the back foot this morning after US PCE showed inflation slowed a touch more than expected in August
Overview
Data releases around the world, notably in Europe, painted a similar picture, but the PCE print is weighing on the Dollar more than other currencies this morning. Incomine and spending growth also slowed as well, placing USD solidly at the bottom of the G10 pack this morning. The Bloomberg Dollar Spot Index has sunk roughly a third of a percent since yesterday’s close, which does place it very near its year-to-date low point on the first business day of 2024.
Diving into the Fed’s preferred inflation gauge, the monthly figure for August showed inflation grew just 0.1%, which was below expectations, and the annualized figure came in at 2.2%. Last month’s annualized inflation print was a substantial amount higher at 2.5%. Income and spending growth, as well, as consumers become more conscious of their spending habits given the weakening state of the labor market. All these prints do combine to make the Fed’s decision to jump-start easing with 50 basis points last week merited. Traders this morning are piling anew into calls for yet another supersized cut from the Fed in November – the odds of such a move are now priced at 50%, compared with a 20% chance as recently as last Friday. Economists now foresee the PCE annual target hitting 2% as soon as early next year, bringing those expectations forward as well.
Though the Dollar is not the worst performer in the G10 through this week, it is certainly near the back of the pack as AUD, NZD, and GBP outperformed their peers in a fairly dramatic fashion. Continued Chinese stimulus actions, too, have bolstered risk sentiment around the world and kept the traditional haven value of USD toward the lower side. There is some room for a smaller Dollar comeback today and next Monday amidst month- and quarter-end flows, but we don’t foresee USD returning to its high points from June and July any time soon.
What to Watch This Week…
- Canadian Bank Holiday next Monday
- Mexican Bank Holiday next Tuesday
- Monex USA Online is always open.
EUR ⇑
The single currency is strengthening against the Dollar for the fourth day in five, and is trading very close to its year-to-date highs. This comes even on the heels of rather dismal inflation data from Spain and France, both annualized figures coming in well below expectations. Spanish CPI showed price growth of just 1.5% on expectations fo 1.9%, and France’s print came in at a pithy 1.2%. This has shifted market bets back toward a 25 basis point cut in October, but slower US figures are proving to be a bigger price driver for the pair at the moment, and PCE helped EUR reverse losses taken during the Asian and European sessions
JPY ⇑
Japanese Yen is outperforming its G10 peers in a substantial way this morning after ex-defense minister Shigeru Ishiba defeated his challenger to become the LDP’s party leader and Japan’s next prime minister. Ishiba has long been a proponent of normalizing Japan’s ultra-loose monetary policy, while his challenger Sanae Takaichi has advocated for further policy easing. His victory overnight has bolstered JPY to the tune of nearly a percent and a half. Ishiba has also advocated for the idea of an “Asian NATO,” which would risk further escalation of tensions with China, but overall markets are taking his victory as a signal that Japan’s economic policies will not change too dramatically.
