USD/JPY retreats following PCE data

The USD/JPY pair dipped following February’s Core PCE data, indicating a gradual cooling of inflation but concerns linger. Fed officials maintain a cautious outlook on rate cuts, awaiting further evidence of sustained disinflationary trends.

The US Core Personal Consumption Expenditure (PCE) price index, the Federal Reserve’s preferred inflation gauge, showed prices continuing to trend lower, though at a slower pace. The major trades were at 151.25, down 0.09%.

The Core PCE was lower than expected in February, coming at 0.3% MoM, below the previous month’s data. Yearly data cooled from 2.9% to 2.8%, as estimated by the consensus. Headline inflation came at 0.3% below January’s forecasts, and in the 12 months to February, it was higher than the previous month at 2.5%, up from 2.4%.

Fed officials continue to take a cautious stance on rate cuts, awaiting further evidence of sustained disinflationary trends. Other inflationary readings, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI), show signs that inflation is becoming entrenched above the 3% threshold.

The labour market is re-tightening again, following four consecutive weeks of fewer Americans filing for unemployment benefits. This could increase spending, which consequently could push prices higher. Wells Fargo analysts noted that there hasn’t been consumer fatigue, making it difficult for businesses to hold the line on prices if consumers are still willing to splash out at these levels.