Forex Signals Brief November 30: The FED Observing the PCE Price Index Inflation Today
Yesterday started with CPI inflation figures from Australia, which declined more than expected, although they didn’t have much impact on the AUD, which increased as the USD continued to decline during the first two trading sessions. The market continues to price in more FED rate cuts in 2024, and is currently priced at 118 basis points (bps) until the end of the year, up from 100 bps on Tuesday.
Declining German CPI inflation, dovish Fed comments, and dovish Beige Book commentary continued to put pressure on the USD which slipped lower and risk assets higher. Traders are in favour of the prospect of a soft landing in which inflation returns to 2% and the FED starts the cutting cycle.
EUR/USD was showing some weakness and retreated below 1.10 after the softer German and Spanish CPI consumer inflation figures, while the NZD showed resilience once again after some hawkish remarks by the Reserve Bank of New Zealand, which left interest rates unchanged at 5.50%. The US prelim GDP reading for Q3 was revised higher to 5.2% which helped stop the USD retreat in the US session.
Today starts with the manufacturing and services PMI reading from China. Anticipations are for an improvement in November, with services expected to move away from costagnation and anufacturing activity might leave behind contraction, which would be welcomed by risk assets such as stock indices and commodity currencies.
In the European session we have the Eurozone inflation report which is predicted to how another slowdown with expectatiuons for a tick lower to 2.8% from 2.9% previously for the headline number, while core inflation is expected to fall to 3.9% from 4.2% previously. The ECB has been trying to sound balanced, but traders know that even if the report exceeds expectations which is unlikely, it won’t spark a rate hike while the unemployment rate is expecteed to remain stable at 6.5%.
Later in the US session we have the US PCE price index which is predicted to dip to 3.1% YoY from 3.4% previously, while the MoM number is expected to slow to 0.1% from 0.4% before. The FED’s favourite inflation metric, Core PCE YoY, is forecast to dip to 3.5% from 3.7% before, while the MoM number is expected to decline to 0.2% from 0.3% previously. Unemployment claims are expected to show a 10k jump for last week, moving to 219k from 209K previousy but the market is unlikely to react significantly to this news.
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