The US dollar initially rallied after the dual releases of PCE inflation data and durable goods orders. The latter was strong and that initially carried the day but a closer look at PCE put the focus back on inflation and the likelihood the Fed will reach its target sooner.
PCE core inflation rose 3.2% y/y, which was below the 3.3% expected. In addition, the monthly number at 0.1% (0.09% unrounded) was below 0.2% expected.
Importantly, the next three months will have a tailwind on core inflation as they will lap Dec, Jan and Feb 2023 numbers of +0.3%, +0.6% and +0.3%, respectively. As those numbers fall off, it will further pull core inflation to target (and with headline inflation starting at 2.6%, it could be at target by April).
The market is increasingly coming to the conclusion that inflation has been slain, and that the Fed now has 550 basis points of ammunition in case of economic softness. That's a big Fed put and similar dynamics are in place throughout the globe, creating the conditions for a period of strong growth.
EUR/USD initially fell to 1.1002 after the data but later rebounded to 1.1040. Eyes are on 1.1017, which was the November high that finally broke a short time ago.
