Focus on U.S. Core PCE Print for Inflation Insight
The market’s attention is now on the U.S. core personal consumption expenditures (PCE) print, which serves as the Federal Reserve’s preferred gauge of underlying inflation. This data will provide clues about the pace of inflation in the world’s largest economy. Analysts expect the core PCE price index to rise 3.3% year-on-year, slightly lower than October’s reading of 3.5%. If inflation eases further, the Fed will have more flexibility to implement policy adjustments.
A higher inflation rate would indicate the need for the Fed to cut interest rates more aggressively. Fed officials have expressed their commitment to achieving the 2% inflation target, emphasizing that there is still work to be done in this regard. Nonetheless, they have the capacity to front load cuts when core PCE is at 3.5% and declining. This suggests that if inflation continues to moderate, the Fed will have room to ease monetary policy.
Dollar Index Hovers Around Four-Month Low
The dollar index, which measures the currency against a basket of others, stood at 101.76, near a four-month low of 101.72. This represents a weekly loss of approximately 0.8%, extending the decline from the previous week. During its latest policy meeting, the Federal Reserve hinted at potential rate cuts in 2023, contributing to the weakening of the dollar.
In other currency movements, the Australian dollar dipped to $0.6797 but remained close to its five-month high of $0.68035 reached the day before. The British pound held steady at $1.26905, showing a marginal weekly gain despite disappointing British inflation data. Meanwhile, the Japanese yen maintained its position at 142.09 per dollar. Japan’s core consumer prices rose by 2.5% in November, the slowest pace in over a year. This alleviates pressure on the Bank of Japan to phase out its extensive monetary stimulus.