The Fed's preferred measure of inflation, the core PCE, was lower than expected, printing at 5% YoY and 0.2% MoM. Last month the numbers were 5.2% YoY and 0.5% MoM. This follow's a gap lower in the 10-year real rate following Fed Chair Powell's Brookings Institution delivery.
The market is anticipating that the current hiking cycle is reaching its peak, with the risk-on sentiment more prevalent since the beginning of October. This is not surprising given the forward-looking nature of the markets.
However, the data needs to trend lower. In this regard, we are keeping an eye on the median CPI, which may be rolling over, but more data points are needed. The Fed is concerned that inflation is entrenching and is desperate to bring it down. Any disappointments on this front will rotate capital back into the dollar in a flight to safety.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.