Read all about it and more, in the newest economic data creating an uncertain picture for the United States economy. Core personal consumption expenditures (PCE) inflation has steadied, and personal income and spending have both resumed growing strongly. In November, core PCE inflation increased by 0.2% m/m, the same as the 0.0% m/m change seen in October. Year-over-year, it ticked up marginally to 2.8%, from 2.7%. These numbers come as the US Dollar is under bearish sentiment. This whole trend is being driven by dovish fed expectations coming from the Federal Reserve.
Personal income rose 0.3 percent in November personal earnings, indicating a continued upward trend of consumer income. Consumer spending continued to be strong at 0.5%. That’s a strong signal that consumers continue to demonstrate their willingness to spend, despite threats of economic doom hanging over us. The next meeting of the Federal Reserve on January 27-28 is going to be highly scrutinized. Everyone wants to see how its monetary policy reacts to the unfolding situation.
Economic Indicators and Market Reactions
While the market considers all these numbers, the US Dollar Index (DXY) is currently trading at 99.37, about 0.41% lower. Investor expectations regarding the Federal Reserve’s future policy direction are a primary factor behind this drop. Indeed, a clear majority — 55 of 100 polled economists — think the first cut will occur in June or beyond.
Adjusted for Labor Day week distortions, initial jobless claims shot up to 200,000, which is dramatically lower than the expected jump to 212,000. This tells us that the labor market is still booming despite the overall economy being pretty weak. In case anyone questioned the momentum of the recovery, the annualized Gross Domestic Product (GDP) for Q3 grew by 4.4%, demonstrating meaningful economic growth.
“The economy continued to be in a good place.” – European Central Bank (ECB) monetary policy accounts
The Federal Reserve’s Role
As the U.S. central bank, the Federal Reserve wields tremendous influence over the monetary policy landscape in the United States. With inflation measures stuck just under 2% and a labor market that finds no signs of wage pressures, it’s walking a fine line. The next meeting will probably determine how these economic concerns are addressed and whether or not the Fed’s focused period of change will continue.
Recent comments from ECB monetary policy accounts highlighted that the economy is “more resilient than previously anticipated,” suggesting a favorable outlook for both the US and European economies. Beyond this, they highlighted the need for “full optionality in either direction,” meaning the ability to be flexible and adapt as economic conditions develop.
“This has been a very productive meeting.” – US President Donald Trump
Currency Exchange Dynamics
In overseas trading, EUR/USD is trading about 1.1742, showing just how currency dynamics are impacted by these short- and long-term economic trends. The declining US Dollar has ushered in a new trend with traders. They’ve turned their attention to the Euro, riding high on positive vibes generated by the ECB.
The mix of US economic data and Fed policy is still driving market sentiment. Investors remain cautious but optimistic about potential shifts in monetary policy that could arise from the Federal Reserve’s upcoming discussions.