How sticky inflation is saving US dollar
The most recent PCE data shows inflation is not lowering as quickly as once expected. While far from the Fed's 2% target, sticky inflation may be good for US dollar.
Key points
- Core PCE rose to 4.2% YoY
- EUR/USD fell back to 1.0850 after the inflation reading
- There is a 37.7% chance of a rate hike by the December 13th FOMC meeting according to CME's FedWatch tool
Core PCE's impact on US dollar
The Fed's preferred inflation gauge, Core PCE Price Index, came in as expected at 4.2%. Even though it was not higher than expected, it marked a rise from last month, and another reading above 4%. Core PCE has not been below 4% since mid-2021 - still well above the Fed's target of 2%.
Even though inflation may have peaked, stability above 4% could be a strong signal to continue hiking rates for longer. Interest rate projections show an almost 38% probability of a rate hike before 2024. An extended high interest rate enviroment continue to drive demand for US dollar, especially as inflation continues to lower in the eurozone and other regions.
How to trade EUR/USD
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on EUR/USD
Trading forex requires an account with a forex provider like IG. EUR/USD can be found in IG's platform under the 'Major' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
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