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If PCE exceeds expectations, the U.S. dollar will soar; if it falls short of expectations, may the market collectively dive?
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: If PCE exceeds expectations, the US dollar will soar; if it falls short of expectations, the market may collectively dive?". Hope this helps you! The original content is as follows:
As this week xmaccount.comes to an end, market focus turns to the upcoming "Data Flood Week." From Monday to Friday next week, the world's major economies will intensively release a series of key economic indicators, the most watched of which is the September personal consumption expenditures (PCE) price index of the United States, which will be released next Friday (December 5).
As the most important measure of inflation by the Federal Reserve, this data will be released before the Federal Reserve’s December interest rate meeting, and its influence is self-evident. The market currently generally expects that the year-on-year PCE increase in September will rise slightly from 2.7% to 2.8%, while the core PCE excluding food and energy is expected to remain unchanged at 2.9%. If the actual data is in line with or higher than expected, it may strengthen the Fed's stance of "higher and longer interest rates," thus providing support for the U.S. dollar; conversely, if the data is lower than expected, it may ignite strong market expectations for an interest rate cut next year, putting downward pressure on the U.S. dollar.
In addition to PCE, a number of heavyweight data will be released next week. On Monday, the November manufacturing PMI of Canada and the United States and the U.S. ISM manufacturing PMI will be announced first. These indicators directly reflect the prosperity of the manufacturing industry and are also important indicators for judging the momentum of the global economy. On Wednesday, the U.S. ADP employment changes, industrial production index and ISM non-manufacturing PMI will also be released to further describe the conditions of the labor market and service industry. Friday is called a "super day" - Japanese household spending, German industrial orders, British Halifax house price index, Eurozone GDP revision, Canadian employment report, U.S. factory orders and the University of Michigan's preliminary consumer confidence are all released together. The information density is extremely high, and it is very possibleTriggered violent fluctuations in global currency markets.
It is worth noting that despite the large amount of data, the core logic of the market still revolves around the US dollar. Currently, the trend of the US dollar is not only driven by domestic economic data, but also deeply affected by policy expectations. Recently, U.S. Treasury Secretary Bessent revealed that Trump may announce his candidate for the next chairman of the Federal Reserve before December 25. Kevin Hassett, the current director of the White House National Economic Council, is regarded as a popular candidate. Since he has always supported a loose monetary policy stance, if he takes office, the market generally believes that he will be more "dovish" than the current one. This prospect has begun to ferment, prompting traders to increase their bets on future interest rate cuts, thereby posing potential pressure on the dollar. However, if the data to be released continue to show that inflation is stubborn and the economy is still resilient, even if the Fed changes its chairman, it may be difficult to quickly turn to easing. The uncertainty of the policy path makes market sentiment particularly sensitive.
The Japanese yen rebounds, and the Bank of Japan’s movements become the biggest variable
Among many non-US currencies, the Japanese yen has recently shown clear signs of rebound. Data show that Japan's core CPI rose at 2.8% year-on-year in October, exceeding market expectations of 2.7%, indicating that domestic inflationary pressures still exist. At the same time, the preliminary value of industrial output in October recorded 1.4%, much higher than the expected -0.5%, showing that Japan's economic fundamentals have certain resilience. The two data together boosted market expectations for tightening policy by the Bank of Japan (BOJ). More importantly, Bank of Japan Governor Kazuo Ueda recently made it clear that the "feasibility and timing" of raising interest rates will be discussed at the next meeting, which was interpreted by the market as a strong hawkish signal. Analysts believe that if Ueda once again releases tightening tendencies when he delivers a speech next Monday, and even hints that the window for raising interest rates is opening, the yen is expected to continue its upward trend, and the dollar against the yen may face further correction pressure.
In addition, against the background of rising global risk aversion, the traditional safe-haven properties of the Japanese yen may also be reactivated. Taken together, improvements in Japan's domestic inflation and output data coupled with rising policy expectations are gradually reversing the continued weakness of the yen in the past few years. As long as the Bank of Japan does not reiterate its "unlimited bond purchases" or maintain its ultra-loose xmaccount.commitment, the yen will have the basis for a period of strength.
The Euro and the British Pound are clearly differentiated
In contrast, the performance of the Euro and the British Pound are clearly differentiated. ECB executives have recently expressed an overall stable stance. Vice President De Guindos said the current inflation development is "satisfactory" and chief economist Lane emphasized that wage growth is moving towards achieving the 2% inflation target. This shows that the European Central Bank has no plans to cut interest rates in a hurry in the short term. It is likely to keep interest rates unchanged in December, providing basic support for the euro. However, France's preliminary HICP value for November released today was lower than expected, showing that inflation in some euro zone countries is cooling down, which once dragged down the euro's weakness. Next week, the revised third-quarter GDP of the Eurozone and the initial value of HICP for the entire region will also be released. These data will directly affect the market’s judgment on the policy path of the European Central Bank and become a key catalyst for euro fluctuations.agent.
In terms of sterling, the recent British autumn budget has become the core event that dominates the trend. According to the latest forecast from the official agency OBR, the British economic growth rate will be significantly reduced from 1.9% to 1.4% in 2026, and the average annual growth rate in the next ten years will be only 1.5%. At the same time, CPI inflation is not expected to return to the 2% target until 2027, one year later than previously forecast. This means that it is difficult for the Bank of England to make large-scale interest rate cuts in the short term. Instead, it may maintain higher interest rates to suppress inflation, which should theoretically be good for the pound. But the reality is that the market is more concerned about its weak long-term growth. Against the backdrop of heightened global economic uncertainty, traders are less confident in the UK's economic prospects, limiting the pound's upside. There are only two data items next week: Nationwide and Halifax house price index. It is a light week overall. The pound is likely to passively follow the fluctuations of the US dollar and lacks independent market trends.
Infrastructure risks have emerged, and global market volatility risks have intensified
Just as the market was preparing for a data storm, an accident exposed the fragility of the modern financial system. The Chicago Mercantile Exchange (CME) was suspended for several hours due to a data center cooling system failure, which affected multiple active markets including crude oil, gold, palm oil, U.S. stocks and Treasury bond derivatives. Although this incident did not cause a systemic crisis, it reminded traders that today, when the world is highly dependent on electronic transactions, any infrastructure failure may trigger a chain reaction. At the same time, the political dynamics of the United States in Venezuela are also regarded as potential oil price disturbances, which may indirectly affect the trend of xmaccount.commodity-related currencies.
Overall, the global market is currently at a critical turning point at the end of the year. On the one hand, macro data are released intensively and policy expectations are changing; on the other hand, geopolitical and technological risks are quietly rising. Analysts pointed out that although central banks seem to be on track, market differences on the future path are widening; the dollar is still the dominant force, but its direction depends on whether core data such as PCE confirm the stickiness of inflation.
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