US Core PCE Preview: FX fallout on stronger inflation print to be limited – MUFG

The US Dollar advanced yesterday and has stabilised today. For the Fed, the PCE inflation data today will be one key piece of info. Economists at MUFG Bank how the figures could impact FX market.

Key data still to come

A stronger inflation print would certainly further increase pricing of a 25 bps hike on 26th July although with NFP next week, we would not expect a substantial shift in rate hike expectations. The market is currently priced at about an 85% probability of a 25 bps hike – so there is limited further scope for yields from here in pricing fully a 25 bps hike next month. The FX fallout will likely also be limited given the German inflation data yesterday saw the harmonised rate rebound from 6.3% YoY to 6.8%. 

The US Dollar performance is likely to remain more mixed from here consistent with its performance through the first half of the year. 

Near-term there are downside risks for EUR/USD but an active ECB and higher core inflation through the summer should provide support.

See – US Core PCE Bank Expectations: Fed preferred inflation measure to make little progress