Skewed risks
US core PCE data was released on Friday. Mildly softer inflation has allowed some limited US Dollar selling pressure. Due to revisions in US rate expectations, risks to the US Dollar that are driven by inflation publications are significantly skewed towards soft inflation releases. Friday’s data showing 0.2% month-on-month core inflation therefore caught the market’s attention. The conclusion so far is that significantly more evidence would be needed to change the market’s opinion that the Fed won’t need to cut rates on inflation grounds anytime soon. Let’s not forget, however, the Fed has a broader mandate than many other central banks. For the Fed and its policy setting Committee, employment matters too.
Dollar sensitive data is therefore far from in the rear view mirror. Today, JOLTS data will provide another option for markets to scrutinise the US economy. However, this data will likely serve more to raise speculation over the non-farm payroll data and labour market report due to be released on Friday. Based upon the skew highlighted above within USD trading dynamics, it will also be softer labour market data that could prove more destructive to the Dollar than strong jobs data could prove to be constructive. Such risks will continue to develop should data continue to fall short of forecasted levels, as we have seen evidenced by yesterday’s contractionary PMI figures.
Recall also that due to trade and market influences, any consideration of the Dollar’s value is also intrinsically concerned with the value of the Euro and EURUSD. Thursday’s ECB decision could therefore prove to exacerbate USD volatility particularly within emerging market pairs. Whilst markets will be digesting election results in Mexico and South America, EM implied volatility remains near recent highs.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – British pound
Humphrey Percy
Fri 13 Jun 2025
British pound Sterling finds itself in the limelight and trading at its recent highs as somewhat improbably a couple of bolder market commentators have suggested the UK will benefit as a result of the disaffection with the USA and the USD at present. Those commentators have obviously not been following the commentary about UK Chancellor […]
Daily Brief – EU Inflation
Humphrey Percy
Wed 4 Jun 2025
EU Inflation Paving the way for a 25bp rate cut tomorrow, EU inflation came in at 1.9% on the back of uncertainty, lack of consumer confidence and people sitting on their cash. So overall good on inflation but a sign of less good things in the EU. As ever, the overall inflation figure had some […]
Daily Brief – UK Employment
Humphrey Percy
Wed 11 Jun 2025
UK Employment Real life consequences of policies that fulfil Chancellor Reeves’ agenda: this time we will not dwell on the plainly evident politics of envy stuff about targeting the higher earners, stuffing the non-doms, and even deciding to double tax those wishing to pay for private education or invest in property through second homes. This […]
