Annual inflation in the United States (US), as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, held steady at 2.6% in July, the US Bureau of Economic Analysis reported on Friday. This print came in line with the market expectation.
The core PCE Price Index, which excludes volatile food and energy prices, rose 2.9% in the same period, following June’s increase of 2.8% and matching analysts’ estimates. The PCE Price Index and the core PCE Price Index rose 0.2% and 0.3%, respectively, on a monthly basis.
Other details of the report showed that Personal Income increased by 0.4% in July, while Personal Spending expanded by 0.5%.
Market reaction to PCE inflation data
These figures don’t seem to be having a significant impact on the US Dollar’s performance. At the time of press, the USD Index was up 0.15% on the day at 98.05.
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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.18% | 0.39% | 0.21% | 0.14% | 0.00% | -0.06% | 0.13% | |
| EUR | -0.18% | 0.21% | 0.02% | -0.03% | -0.10% | -0.23% | -0.05% | |
| GBP | -0.39% | -0.21% | -0.24% | -0.24% | -0.32% | -0.39% | -0.27% | |
| JPY | -0.21% | -0.02% | 0.24% | -0.01% | -0.23% | -0.26% | -0.01% | |
| CAD | -0.14% | 0.03% | 0.24% | 0.01% | -0.15% | -0.18% | -0.02% | |
| AUD | -0.01% | 0.10% | 0.32% | 0.23% | 0.15% | -0.12% | 0.05% | |
| NZD | 0.06% | 0.23% | 0.39% | 0.26% | 0.18% | 0.12% | 0.18% | |
| CHF | -0.13% | 0.05% | 0.27% | 0.01% | 0.02% | -0.05% | -0.18% |
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 PCE inflation data at 06:00 GMT.
- The core Personal Consumption Expenditures Price Index is forecast to rise 0.3% MoM and 2.9% YoY in July.
- Headline annual PCE inflation is set to remain unchanged at 2.6%.
- Markets broadly expect the Federal Reserve to cut the policy rate by 25 bps in September.
The United States (US) Bureau of Economic Analysis (BEA) will publish the Personal Consumption Expenditures (PCE) Price Index data for July on Friday at 12:30 GMT.
The PCE index is closely watched by market participants because it is the Federal Reserve’s (Fed) preferred measure of inflation and could influence the policy outlook.
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 expected to advance 0.3% month-over-month (MoM) in July, at the same pace as seen in June.
Over the last twelve months, the core PCE inflation is set to tick up to 2.9% from 2.8% in June. Meanwhile, the headline annual PCE inflation is seen holding steady at 2.6% in this period.
Markets usually brace for a big reaction to the PCE inflation data as Fed officials consider this inflation gauge when deciding on the next policy move.
While speaking at the annual Jackson Hole Economic Symposium earlier in the month, Fed Chairman Jerome Powell adopted a relatively dovish tone. Powell acknowledged that downside risks to the labor market were rising and said that it was a reasonable base case for the inflation effects of tariffs to be short-lived. He also shared the Fed’s inflation projections for July, noting that the latest data indicated that the annual PCE inflation and core PCE inflation rose 2.6% and 2.9%, respectively.
Previewing the PCE inflation report, TD Securities said:
“We look for core PCE prices to accelerate in July to 0.30% m/m. Headline will likely moderate to 0.22% due to weak food and energy inflation. Y/Y inflation should be 2.9% and 2.6%, respectively. July saw moderate passthrough of tariffs into goods prices but an acceleration in services. We forecast personal spending to increase 0.5% as core retail sales were strong.”
How will the Personal Consumption Expenditures Price Index affect EUR/USD?
The US Dollar (USD) maintains a neutral stance after weakening against its rivals in the immediate reaction to Powell’s remarks, as markets now nearly fully price in a 25 basis points Fed rate cut at the next meeting in September.
The monthly core PCE figure will hold utmost relevance as it is not distorted by base effects. However, the market reaction could remain short-lived, with Powell’s speech diminishing the surprise factor. Nevertheless, a reading of 0.5% or higher in this data could trigger a USD rally and weigh on EUR/USD, while a print of 0.2% or lower could have the opposite impact on the pair’s action.
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 moves sideways slightly above 50 and EUR/USD fluctuates at around the 20-day and the 50-day Simple Moving Averages (SMAs), pointing to a lack of directional momentum.”
“The lower limit of an ascending regression channel coming from January forms an immediate support at 1.1600 (static level, round level) before 1.1500 (100-day SMA) and 1.1400 (static level, round level). Looking north, 1.1800 (static level, round level) could be seen as the next resistance ahead of 1.1950 (mid-poit of the ascending channel).”
Fed FAQs
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.
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.
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.
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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