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US Dollar Lifted Briefly as Fed’s Favorite Inflation Measure Held Steady

US Dollar Lifted Briefly as Fed’s Favorite Inflation Measure Held Steady

Ryan Cox, Contributor

Talking Points:

  • September’s core Personal Consumption Expenditure Price Index held at 1.3% (YoY)
  • The US Dollar rose 0.1% after the PCE index data was released but then continued its two-day downward trend
  • The PCE index is the preferred inflation measure for the FOMC as they assess a possible move in December

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The US Dollar offered a strained reaction to the slightly lower than expected year-over-year core reading from September’s US Core Personal Consumption Expenditure Price Index (PCE). The US Dollar rose as high as 0.1 percent before continuing downward on its two day pull-back. The core PCE index reading came in at 1.3 percent which fell short of economist’s expectations of 1.4 percent; however, it was in-line with the 1.3 percent August reading and above the yearly average of 1.27 percent.

The PCE index is the Federal Reserve’s preferred inflation measure. The Federal Open Market Committee (FOMC) maintains a dual mandate for promoting steady inflation growth (a loose target of 2.0 percent) and full employment. In the statement from Wednesday’s FOMC rate decision the Committee stated that market-based measures of inflation compensation moved slightly lower.

Additionally, the Committee said that inflation has continued to run below their long-run objective of 2 percent. With today’s core PCE update holding to 1.3 percent from its last reading, the FOMC’s progress towards its 2 percent, medium-term target is difficult to judge leading into the final rate decision of the year. The Committee suggested that December’s meeting was still open for the Fed to consider a rate hike with a steady unemployment rate, moderate pace of economic expansion and continuing assessment of inflation measures like today’s PCE index.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.