US Fed's preferred inflation gauge hits dollar

The Federal Reserve's most favored gauge of inflation dropped to its lowest point in almost three years.

The data was worse than what the market had anticipated.

The dollar index has dropped to its lowest point since late July, now sitting below 101.5.

The US Federal Reserve's Core PCE Price Index, excluding food and energy, rose 0.1% in November, which was worse than the expected 0.2%. Furthermore, the data for the previous month was revised downwards from 0.2% to 0.1% month-on-month.

The Core PCE Price Index saw a year-on-year growth of 3.2% in November, which was lower than the anticipated 3.3%. This 0.2% decrease from the previous month was the lowest since March 2021.

Pepperstone notes that the Federal Reserve will increase its capacity to facilitate policy if needed, and although Fed officials state that their work is not finished and the last effort to reach their 2% inflation goal is the most difficult, they can be more effective in reducing rates when core PCE is 3.5% or lower.

Scotiabank does not anticipate any relief from the pressure on the dollar in the near future. Nevertheless, seasonal influences and the current abundance of negative news surrounding the dollar could create an opportunity for its revival in the upcoming year.

Thursday's release of the final third-quarter GDP growth data showed that the US economy is slowing more than anticipated, which is a strong case for the Federal Reserve to begin its rate cut cycle sooner than expected.

The probability of the Fed cutting rates at its March meeting increased significantly, rising from 69.5% a week ago to 82.9% the day before and finally reaching 88%.