US Dollar: Fed repricing and inflation data steer path – Deutsche Bank

Deutsche Bank’s Early Morning Reid notes that softer US PCE revisions reduced expectations for an October Fed hike, even as the Dollar Index edged higher. The bank’s US economists see less urgency to act this month but still expect a December hike, with market pricing for year-end tightening nudged lower as core and headline PCE surprised on the downside.

PCE revisions temper Fed expectations

"So that played into the narrative from NY Fed President Williams on Tuesday, and it meant market pricing for an October hike was down from 47% on Tuesday to 37% by the close last night, while the amount of hikes priced by year-end fell by -2.5bps to 29.6bps."

"Indeed, our US economists see the print as reducing the urgency for the Fed to act in October but, with inflation still well above target, they maintain the expectation of the next hike in December (see their reaction here)."

"Admittedly, the core PCE print for August wasn’t far from expectations, at a monthly +0.25% (vs. +0.3% expected). But the significant news was the downward revisions to the previous months, which made the overall inflation picture look a lot better."