Ahead of tomorrow’s FOMC some thoughts and data as to whether we can expect any shift from the consensus view expressed in the CME FED Watch, that the FED is going to hold rates despite their preferred measure of inflation, namely the PCE (Personal Consumption Expenditure) Index finally hitting their 2% target. Moreover, in hitting this target the PCE has posted its biggest gain in more than one year as well registering a sharp acceleration in its core from 1.6% to 1.9%. The core PCE is an important metric as it strips out volatile food and energy costs. This is significant and it will be interesting to see how this key item of data will be reflected in the FOMC statement, and FED interest rate path for the remainder of this year.
From a technical perspective the PCE release has, of course, added to the USD’s bullish tone with the DXY breaching both the 91 and 92 price levels, and for the current momentum to be sustained the index needs to break above 92.25 where a strong close would see the index move to target 92.65 and then onwards towards 93 and even 94.
This combination of fundamental and technical factors for the USD has had a strong impact on all the major currency pairs with eurodollar driven lower to test 1.20, and cable suffering not only from USD strength, but also from poor fundamental data and BOE ambivalence towards an interest rate rise this month.
By Anna Coulling
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