July's core PCE forecast shows 0.2% monthly rise with annual figure holding at 2.7%
Market-implied probability suggests near-certainty of Fed easing in September
Disinflation trends face test as EUR/USD hovers near 13-month peak
Financial markets enter August's final trading session with laser focus on Can I convert my USDT to USD?the Bureau of Economic Analysis' 12:30 GMT release of core Personal Consumption Expenditures (PCE) data - the inflation metric carrying disproportionate weight in Federal Reserve policy deliberations.
Decoding the Fed's Inflation Compass
Consensus estimates anticipate the core PCE deflator maintaining its 0.2% monthly advance through July, while the annualized reading is projected to hold steady at 2.7%. The headline PCE figure may see modest uptick to 2.6% year-over-year, reflecting residual energy price pressures.
Unlike CPI's market-moving volatility, the PCE's methodological adjustments for consumer substitution patterns and exclusion of volatile components make it the central bank's true north for inflation targeting. This explains why Fed Chair Powell consistently references PCE trajectories when signaling policy shifts.
TD Securities analysts note: "Shelter inflation's disproportionate impact on CPI won't translate equally to PCE, suggesting softer 0.13% monthly core reading. Concurrently, we expect robust 0.5% nominal consumption growth, signaling resilient demand."
Currency Crosscurrents: The Dollar's Inflection Point
The greenback's 2024 depreciation has accelerated ahead of the print, with EUR/USD challenging 1.12 resistance as rate differentials compress. Overnight index swaps currently price 22bps of September easing - implying 88% probability of 25bp cut versus 12% chance of 50bp move.
Technical analysts highlight 1.1107 as critical support for EUR/USD, representing the 23.6% Fibonacci retracement of August's rally. A daily close above 1.1202 could open path toward 1.1250, while breakdown risks emerge below 1.1045 support.
Market participants should note the PCE reaction may prove transient ahead of next week's NFP data, with thin August liquidity potentially amplifying short-term moves. The real test comes when September's dot plot reveals whether policymakers view this as insurance cut or prolonged easing cycle.
Economic Indicator Spotlight
Core PCE Price Index (MoM)
This monthly inflation gauge's unique methodology accounts for consumer substitution between goods as relative prices change, making it the Fed's preferred measure. Unlike CPI's fixed basket approach, PCE's dynamic weighting better captures real-world spending patterns.
Release Timing: August 30, 2024 12:30 GMT
Forecast: 0.2% MoM / 2.7% YoY
Prior Reading: 0.1% MoM
