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Warsh speech and hawkish USD pricing keep dollar markets cautious

ING said core PCE cooled only gradually, with core PCE at 0.2% month on month and 3.3% year on year, leaving little room for rate hikes but enough hawkish repricing to support the dollar near 99.0.

Reported · Written up by our desk · Major Pairs

ING strategist Francesco Pesole said recent US Personal Consumption Expenditures data points to ongoing disinflation, but not fast enough to force additional Federal Reserve hikes this year.

Pesole highlighted that core PCE, the Fed's preferred gauge, was reported at 0.2% month on month and 3.3% year on year, while headline PCE was slightly firmer at 0.2% month on month and 3.7% year on year, driving a small hawkish repricing in the USD rate curve.

Despite softer growth signals, with real personal spending unchanged in July and real household disposable income effectively flatlined for more than a year, Pesole expects the Fed to hold rates on 16 September and anticipates a weaker dollar.

Still, he warned that hawkish market pricing and Kevin Warsh's Jackson Hole speech could raise the odds of hikes and keep support under the dollar index, with DXY described as potentially finding support above 99.0 into the speech.

Latest closeDollar index 99.11 ▲0.2%

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