US PCE inflation preview: don't expect too much action here

Fresh US monthly Income and Spending data, including PCE inflation, will be out this Thursday. Fed's favorite inflation reading usually has a limited immediate effect on the USD but provides hints on future central bank's moves. The figures will unveil July inflation, which may lose relevance after the latest FOMC Meeting´s Minutes, which already suggested a September hike. But market players are always looking for clues on what's next to the next, now focused on whether a fourth rate hike is still possible and how close Fed's rates are to a neutral level, as once this last is reached, it will be the end of the tightening cycle.

US core PCE monthly inflation is seen up by a modest 0.1%, while compared to a year earlier, is seen rising 2.0%, slightly above the previous 1.9%.  The core PCE hit the U.S. Fed´s 2%  inflation target in March for the first time since December 2011.

Quarterly data released Wednesday showed that Personal Consumption Prices are estimated to be up by 1.9% in the three months to July, modestly up from the previous estimate of 1.8%, somehow anticipating that the upcoming release will come within the latest levels, just enough to confirm September hike.

Meanwhile, the dollar has been hurt by comments from US President Trump, which complained about the Fed's head hawkish stance. While most analysts believe that Powell will maintain the pre-set course regardless of Trump's words, the market is saying something different, having put an aggressive course at doubt.

In this scenario, US PCE inflation needs to increase by more than 0.1% a month to be a game changer, and that seems quite unlikely. An in-line with forecasted reading will fall short of being a shocker, and therefore unable to back a weakened greenback. Even in the case of an upbeat reading, the dollar could be incapable of advancing in the current scenario, with trade war and Brexit relief news gathering all of the market's attention.