- US consumer spending in September surged.
- The personal consumption expenditures price index increased by 3.4% in September.
- Shunichi Suzuki emphasized Japan’s commitment to responding to the currency market with urgency.
On Friday, currency futures gained on the dollar as US inflation data failed to surprise. Despite recent positive US economic data, the dollar has struggled to make significant gains after substantial increases in the July-September period.
US core PCE price index (Source: Bureau of Economic Analysis)
The personal consumption expenditures price index increased 3.4% in September compared to the previous year, meeting economists’ expectations. Additionally, the core PCE price index, which the Fed uses as an indicator for future price pressures, rose to 3.7%. It represents a slight decrease from the 3.8% figure in August but remains significantly higher than the Fed’s 2% inflation target.
Traders maintain a pessimistic outlook, with no expectation that the Fed will raise its policy rate next week. Furthermore, there is less than a 20% probability of an increase at the Fed’s meeting in December.
Data on Thursday revealed that the US economy experienced its fastest growth in nearly two years in the third quarter, driven by higher wages from a tight labor market.
Elsewhere, as anticipated, the European Central Bank left interest rates unchanged on Thursday, ending a streak of 10 consecutive rate hikes. Still, on Friday, the euro rose by 0.12% to $1.0573. Earlier in the week, there was an unexpected downturn in Eurozone business activity as demand declined across the region, signaling a potentially challenging start to the fourth quarter and the possibility of a recession.
Risk sentiment improved slightly on Friday, with the Australian dollar, often seen as a risk appetite indicator, rising after hitting a one-year low on Thursday.
The yen also pulled back from the 150-per-dollar level, which some consider a potential trigger for intervention by Japanese authorities. Despite expectations of a policy shift in Japan, investors are becoming less enthusiastic about a significant yen rally.
Finance Minister Shunichi Suzuki emphasized Japan’s commitment to responding to the currency market with urgency. Moreover, there is growing speculation that the Bank of Japan (BOJ) may change its policy on bond-yield control during its upcoming meeting next week. Some discussions have revolved around increasing the yield limit set just three months ago.
There is uncertainty regarding potential adjustments to yield curve control, as noted by Jane Foley from Rabobank.