Powell's comments led the market's emotion.
While Friday's inflation numbers could cool the inflation fears a bit, Powell's emphasis on the central bank's policies, investors somehow ignored the data to give more credit to the FED chair's comments.
According to the published data on Friday, the core PCE price index, as the critical measure of inflation, increased 0.1% in July, lower than market expectations of 0.3% and 0.6% in June. The annual core PCE price index, also at 4.6% and down from 4.8%, tested the smallest increase since October 2021. The PCE price index, also at 6.3% and down from a 40-year high at 4.8%, was lower than estimates, same as core numbers.
One of the reasons for lower inflation could be less demand, as FED used to say in previous months. According to Friday's data, personal spending in July, lower than the 0.4% estimated growth, increased only 0.1%. If we add the personal income number with a 0.2% increase, which was the lowest level since January this year, we can quickly realize that economy is getting slower. This slowdown, in line with less demand, can also cool inflation.
On the other hand, the final value of the University of Michigan consumer confidence index in August at 58.2 was higher than the market expectation of 55.2 and July rate of 55.1, and it can say that as the current inflation rate has slowed down, consumption Confidence has recovered.
Despite all optimistic data, market participants ignored them and decided to welcome Federal Reserve Chairman Powell's speech at the Jackson Hole annual meeting. The chairman said that the current data is insufficient to prove that inflation is decreasing, suggesting that the Fed will not ease policy prematurely, even though he mentioned that this policy could cause unfortunate costs.
While market participants are already pricing in a 75 bps rate hike, chairman Powell said the size of a rate hike in September would depend on economic data. Therefore, the August CPI data that will be out on September 13 should be watched closely by investors and market participants, as it will make the FED decision more transparent.
As a reaction, USD Index at 109.48 tested the new 20-year high. From the technical point of view, 107.47 is the critical support level in the short term. As long as DXY trades above this level and while stochastic also staying positive technically remains bullish. On the flip side, breaching under 106.25 can change the trend.
