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The Core PCE Price Index for August is projected to rise by 2.9% YoY and 0.2% MoM, signaling persistent inflation pressures, though slightly lower than July's 0.3% MoM rise. The headline PCE is expected to edge up to 2.7% YoY, indicating that inflation is still above the Fed's target but showing signs of easing. With markets anticipating a 25bps rate cut in October, the Fed's next move will largely hinge on these inflation readings. Fed Chair Jerome Powell’s recent comments suggest inflation is moderating, but concerns about tariffs and persistent price pressures remain. The PCE data will thus play a pivotal role in shaping the Fed's monetary policy outlook moving forward.
The US GDP for Q2 came in at a robust 3.8% QoQ, surpassing the forecast of 3.3%, and signaling strong economic growth. Jobless claims also dropped to 218,000, suggesting a resilient labor market. This positive data suggests the US economy may be less vulnerable to a slowdown than initially feared, making it less likely for the Fed to cut rates aggressively. This outlook has strengthened the USD, pressuring GBP/USD below the key 1.34 level. If the USD continues to hold strong, the GBP/USD pair could see further declines, potentially reaching 1.30 or even 1.28 in the longer term.
The UK Composite PMI for September dropped to 51 from 53.5, showing slower economic activity. This came as a result of the Manufacturing PMI falling to 46.2, a contractionary signal, and Services PMI slipping to 51.9. This data, weaker than the anticipated 52.7, suggests declining growth in the UK’s private sector, exacerbated by weaker overseas trade and declining business confidence. S&P Global’s Chris Williamson warned of worsening job losses and broader economic concerns. The GBP could face continued downward pressure unless there is a significant shift in sentiment or government policy.
Japan’s Core CPI rose to 3.5% YoY in April, exceeding forecasts and marking the fastest inflation rate since January 2023. Driven mainly by higher food prices, this inflationary uptick is drawing attention to the Bank of Japan’s (BoJ) policy stance. Despite the uptick, BoJ Core CPI remains below 2%, but strong inflationary pressures may force a reassessment of monetary policy. The BoJ has previously indicated it could tighten rates, but uncertainty from global trade issues and wage growth lagging behind inflation complicate the decision. Strong inflation readings could lead the BoJ to accelerate rate hikes, influencing the JPY in the coming weeks.
US stocks experienced a pullback on Thursday, with the Dow Jones falling 0.4% and the S&P 500 down 0.5%. The drop came as GDP data showed stronger-than-expected growth, while jobless claims unexpectedly declined. Despite these positive data points, markets are uncertain about future rate cuts from the Federal Reserve, leading to volatility in equities. Tech stocks, notably Oracle and Tesla, suffered from valuation concerns, especially with the ongoing AI hype. The uncertainty about rate cuts and Fed policy has overshadowed optimism, leaving investors wary about the market’s sustainability.
Jobless claims in the US fell to 218,000 for the week ending September 20, down from 232,000 the previous week. This data suggests that the US labor market remains resilient despite growing concerns about economic slowdown. The fall in jobless claims, combined with a strong GDP growth of 3.8% in Q2, indicates that the economy may not be as fragile as some had feared. This has led markets to reassess expectations for rate cuts from the Federal Reserve, with a potentially less aggressive stance on monetary policy. The USD continues to gain strength, driven by these solid economic fundamentals.
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