More USD weakness when the PCE deflator is low than USD strength when it is high – Commerzbank
26.02.2024, 14:58

More USD weakness when the PCE deflator is low than USD strength when it is high – Commerzbank

Thursday will see the release of the PCE deflator for January, the measure that the Fed considers most appropriate for measuring price stability. Economists at Commerzbank analyze US Dollar (USD) outlook ahead of the report.

Another upside surprise in the PCE would reinforce the picture of stubbornly high US inflation

Another upside surprise in the PCE deflator would reinforce the picture of stubbornly high US inflation. It would confirm the USD strength we saw after the CPI numbers, but which is now fading.

On the other hand, a low PCE deflator could give the market a clearer rethink. In my view, the market has taken the January CPI number a bit too seriously: too much as a signal that the disinflation process is stalling, too little as noise. If the PCE number were to confirm my suspicions, the whole nice story behind the recent USD strength would be called into question.

In short, without an opinion on the PCE deflator, I suspect an asymmetric market reaction: more USD weakness when the PCE deflator is low than USD strength when it is high.

 

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