US dollar slides PCE data after the latest inflation report matched forecasts and markets cut back rate hike pricing.
The PCE report showed headline inflation at 4.1% from a year earlier. Core inflation came in at 3.4%. Both readings matched expectations. However, traders appeared relieved that price growth did not come in higher.
Markets now price in 32 basis points of hikes through year-end. That is down from 42 basis points after Warsh’s press conference last Wednesday. As a result, the dollar came under pressure even though other US data beat expectations.
US Dollar Slides PCE Data Reaction
Since the release, the euro climbed to 1.1362 from 1.1340. That move reversed an earlier drop and left the single currency slightly higher on the day. Meanwhile, the dollar fell by 20 to 25 pips across the board.
The source article said falling June oil prices are adding downward pressure further out. Therefore, the market sees a better chance that the Fed can leave rates unchanged instead of raising them.
Strong US Data Fails to Lift Dollar
Other reports pointed to a firmer US economy. Final fourth-quarter GDP was revised up to 2.1% from 1.6%. Initial jobless claims also fell to 215,000 from 226,000. Additionally, the consumption and income figures in the PCE report were better than expected.
Despite those stronger readings, the dollar still weakened. Treasury yields moved lower, with the two-year yield down 3 basis points to 4.11%. S&P 500 futures, meanwhile, rose 0.8% after Micron’s earnings.
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