Dollar rises on strong US core PCE data

LONDON (AFX) – The dollar was higher after data this afternoon showed the core PCE deflator — the Federal Reserve’s preferred measure of inflation — rose at its fastest rate in over ten years in June.

The figures showed core inflation, as measured by the personal consumption expenditure price index, grew by 2.4 pct in June from a year earlier, the biggest gain since April 1995.

At 1.22 pm GMT, the euro was trading at 1.2748 against the dollar, down from 1.2763 just before the data were released, while the dollar rose to 115.08 against the yen from 114.69 previously.

Recent weak US data have gradually caused the market to lean towards thinking that the Fed will finally pause in hiking rates at its next meeting on August 8, but today’s numbers may raise some question marks over that.

However, many still believe today’s rise will not be sufficient to push US rate-setters towards an August hike since it is still within the Fed’s inflation forecast.

"The June figures remain in line with the Fed’s inflation forecast and so we maintain our view that the FOMC is likely to pause in its rate hike cycle at next week’s meeting," said Mike Carey at CALYON.

Investors will therefore be looking to the ISM survey on manufacturing activity later this afternoon and employment figures on Friday for further clues.