Danske Research Team notes that the United States (US) Personal Consumption Expenditures (PCE) Price Index inflation surprise triggered a hawkish market reaction, pushing US rates higher and weighing on EUR/USD.
The pair dropped to 1.1650 as the US Dollar (USD) found support from stronger data
Markets also increased pricing for a potential September Fed rate hike, reinforcing downside pressure on EUR/USD. Dollar strength weighs on Euro “In the US, headline PCE inflation came in slightly above expectations at 3.7% y/y in July, unchanged from the previous month and above consensus at 3.6%. On a monthly basis, headline PCE rose 0.2% m/m versus expectations of 0.1%.
Core PCE was in line with expectations at 3.3% y/y and 0.2% m/m.” “Markets reacted hawkishly to the print, with rates moving higher across both the short and long ends of the curve, while EUR/USD moved lower. Market pricing of a September Fed rate hike increased after the release.” “The USD found support in somewhat stronger-than-expected PCE inflation reading, with EUR/USD dropping to 1.1650.” “In the US, Fed’s annual Jackson Hole conference will take place. This year’s topic is “Financial Innovation: Implications for Payments and Policy”.