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Sticky U.S. PCE Spurs Limited Reaction as NFP Takes Center Stage

Sticky U.S. PCE Spurs Limited Reaction as NFP Takes Center Stage

Omar Habib, Contributor

Talking Points:

- US inflation continued to track below the Fed’s 2% target as core PCE comes largely in line with expectations.

- Personal Spending beat expectations while Personal Income fell short.

- EUR/USD edged slightly lower, but the move was short-lived.

Headline Personal Consumption Expenditures (PCE) came in at +0.9% (YoY) vs expectations of +0.9% and a previous reading of +0.9%. Core PCE increased +1.6% (YoY) in the month ending June, which was in line with expectations of +1.6% and the previous of +1.6%. Personal Spending (+0.4%) and Real Personal Spending (+0.3%) both beat expectations of +0.3% and +0.2%, respectively. Personal Income was just below expectations, at +0.2% versus expectations of +0.3%.

The PCE , while not a market mover itself, has important implications for Fed policy. The stickiness in price growth may keep the Fed on course to further normalize monetary policy as the central bank remains confident in achieving the 2% inflation-target over the policy horizon. Although this data release does not take the Fed significantly closer to action, the ongoing weakness in household earnings may encourage the Federal Open Market Committee (FOMC) to buy more time as central bank officials look for a further improvement in labor market dynamics.

Here are the data affecting the US Dollar this morning:

- USD Personal Consumption Expenditure (JUN): +0.9% versus +0.9% expected, from +0.9% (y/y).

- USD Core Personal Consumption Expenditure (JUN): +1.6% versus +1.6% expected, from +1.6% (y/y).

- USD Personal Income (JUNE): +0.2% versus +0.3% expected, from +0.2% (m/m-).

See the DailyFX economic calendar for Tuesday, August 2, 2016

Chart 1: EUR/USD 1-minute Chart (August 2, 2016 Intraday)

In the immediate wake of the data, the US Dollar edged higher against the Euro, with the EUR/USD slipping to $1.11927 from $1.12028. By the time this report was written, the pair was still near post-data low. With FX volatility edging higher again, it’s the right time to review risk management principles to protect your capital.

--- Written by Omar Habib, DailyFX Research

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