How will US dollar react to PCE, NFP data?

A significant data week is coming up with the release of the most recent PCE inflation estimates on Thursday and the August NFP report on Friday, which will signal the end of the summer. At 12:30 GMT, both reports will be made public.

Following Fed Chair Jerome Powell’s speech on Friday at the Kansas City Fed’s economic symposium in Jackson Hole, Wyoming, in which he struck a precisely balanced tone, the impending figures appear to be drawing even more attention than normal this time. Traders and investors wonder whether the awaited data could support or temper expectations for additional rate hikes at a time when the US currency is hovering around 12-week highs.

The upcoming US data, including PCE inflation figures for August and the Nonfarm Payrolls Report, is causing a mixed reaction in the dollar’s performance. The latest PCE inflation figures are expected to come out on Thursday, and the August NFP report is expected on Friday. The market is now focusing on whether or not the Fed will hike further, with traders closely monitoring expectations.

The Core PCE Price Index has edged up to 4.2% in July, aligning with CPI inflation, which also edged up in July and the jobs report. The labor market remains tight, with wage growth expected at 4.4%, unchanged from the prior month. The jobless rate remains steady at 3.5%.

However, the impact of recent strikes across America could pull the headline lower, but this is good news. Many firms have been offering big pay increases to settle labor disputes. The coming months could witness further upticks in wage growth, which would not be good news for the Fed’s fight against inflation.

Market expectations for a rate hike this year are at stake, and a strong set of figures for September rate hike are expected. The US dollar has made an impressive rebound, but economists believe it was probably not sustainable. Markets have a strong conviction that they won’t see another rate hike from the Fed and that next year, the Fed will begin cutting rates.

Markets are convinced that this point marks the end of the tightening cycle, and further strong figures from the US economy are expected. The forecast for third quarter GDP is around 6% annualized rate, a robust growth rate for this late stage of the tightening cycle.

However, the manufacturing sector is struggling, and the manufacturing PMI will be released on Friday, which will be significant. Economists believe that markets are more inclined to react to negative data, as any negative surprises will likely fuel further selloffs in the US dollar.