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US dollar tempered by core inflation cooldown

Philip McHugh October 30th 2023 - 2 minute read

The US dollar wavered downward last Friday, as the core PCE price index cooled in line with forecasts.

Meanwhile, the pound is dropping this morning, with GBP/EUR subdued at €1.1467 and GBP/USD down at $1.2069. GBP/CAD is similarly weak at CA$1.6759, while GBP/AUD has slipped to AU$1.9032 and GBP/NZD has slid to NZ$2.0773.

Looking ahead, will signs of slowing German inflation pull the euro lower this afternoon?

What’s been happening?

The US dollar edged lower during last Friday’s session, following a cooldown in the core PCE price index for September.

The Federal Reserve’s preferred gauge of inflation fell in line with expectations, serving to undermine interest rate hike bets and soften the ‘greenback’.

Further headwinds came due to a cautiously upbeat market mood, which saw investors move towards riskier assets. Thursday’s strong US GDP data kept the tone cheery, as global recession anxieties were somewhat soothed.

The euro saw similarly blunted trade at the tail end of last week, as sentiment remained low towards the common currency.

The dovish tilt from the European Central Bank (ECB) kept EUR exchange rates tepid, although the weakened US dollar leant some cushioning due to its negative correlation.

The end of the week saw the pound continue its run of rudderless trade, as a short supply of data releases left it wavering.

What’s coming up?

Looking ahead, the primary focus at the start of this week’s session will be two key German data releases. With both the third-quarter GDP growth rate and inflation due, the euro may see volatile trade.

A smaller-than-forecast contraction in German GDP could lend EUR some support. However, with inflation in the Eurozone’s largest economy forecast to have cooled sharply again, a pullback in ECB bets could undermine the single currency.

Meanwhile, a lack of impactful releases could keep the US dollar trading on risk appetite today.

Similarly, the pound may start the week trapped within a narrow range as macroeconomic releases remain thin on the ground.

Written by
Philip McHugh

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