PCE data indicates that the US inflation is still quite high. It eases market concerns slightly, causing the US dollar exchange rate to perk up.

The latest report on Personal Consumption Expenditures (PCE) shows that inflationary pressures in the US remain quite high. The US Dollar Index (DXY) immediately strengthened by about 0.5% to the range of 103.70s as of when the news was written during the early New York session (August 31st).

USD Rises

The Core PCE Price Index increased by 0.2% (month-over-month) in July 2023, exactly in line with market expectations and the previous period's growth. The Core PCE Price Index annually also rose from 4.1% to 4.2%, in line with market estimates.

The data somewhat alleviated concerns arising from the slump in some US labor data on Tuesday and Wednesday, causing the US dollar exchange rate to perk up. The greenback dominated the forex market, preventing the attempted rebounds of EUR/USD, GBP/USD, and AUD/USD. However, the market still doubts the prospects of the next Fed interest rate hike.

"The dollar is fairing better as today's data suggests America's economic glass remains half full," said Joe Manimbo, senior market analyst at Convera in Washington.

However, he also said, "The dollar does remain in a hole for the week, and that's because weaker numbers earlier this week cast doubt on the Fed hiking again."

FedWatch CME indicates an 89% chance for a scenario in which The Fed keeps interest rates unchanged in the upcoming September FOMC meeting. Meanwhile, the drop in ADP Employment Change data on Wednesday has triggered a decrease in the likelihood from around 51% to just 44% for a rate hike scenario in November—and there hasn't been any increase in probability since then.

The next market movement may be limited until tomorrow's New York session releases the August 2023 Non-farm Payroll data. The current consensus expects a decrease in the payroll increase from 187k to 170k. Some traders are concerned that the actual figure may be lower than this estimate due to the poor recent JOLTs, ADP, and unemployment claims data.