PCE Stable, Fed Cautious: Asia Markets in Focus

PCE inflation is stable, and the Fed is cautious about rates. Asia markets await the impact of the ISM Manufacturing index release.

Last Friday, amid Easter holiday closures in many markets, the release of the PCE Price Index provided insights into the Federal Reserve’s preferred measure of inflation for February. The results showed figures mostly in line with estimates. Core PCE eased slightly from the previous month, coming down to 2.8% annually, while headline PCE ticked up to 2.5%. Despite a slower monthly rate of increase, both indices remained relatively high compared to recent months, raising concerns for the Fed regarding the pace of inflation.

Federal Reserve Chairman Jerome Powell indicated a cautious approach to monetary policy at the San Francisco Macroeconomics and Monetary Policy Conference. Powell suggested that while he anticipates a downward movement in the Federal funds rate as inflation eases, he does not foresee it reaching the record lows seen in the past decade. He also noted that PCE inflation aligns with expectations and emphasized that the Fed is not rushing to cut rates, maintaining a balanced stance.

Impact on Asia Session

With major markets in Australia, New Zealand, and Europe closed for the Easter Monday bank holiday, trading activity and volume are expected to be lower than usual for the first trading day of April. The Dollar Index (DXY) opened slightly lower at 104.50, retracing higher briefly before edging lower at the beginning of the session.

PCE Stable, Fed Cautious: Asia Markets in Focus

Key News Events Today

Market participants will closely watch the ISM Manufacturing index release at 12:30 pm GMT in the upcoming session. The index has been contracting for the past 16 months, reflecting weakness in the manufacturing sector. Attention will mainly focus on the March report’s price component, with concerns over potential inflationary pressures amid recent increases in raw material prices.

DXY Outlook

The Dollar Index (DXY) outlook remains cautiously bullish, focusing on the ISM Manufacturing index release. Continued contraction in the manufacturing sector coupled with signs of inflationary pressures could provide further support to dollar bulls.

Central Bank Notes

The Federal Funds Rate target range remains unchanged at 5.25% to 5.50%, with the Committee closely monitoring inflation risks. The economic outlook remains uncertain, and any adjustments to the target range will depend on incoming data and evolving risks.

As markets reopen after the Easter holiday, investors will navigate through economic data releases and central bank communications for insights into monetary policy and inflation trajectory. With the Fed signaling caution and inflation remaining a key concern, market participants will closely analyze incoming data for further clues on the economy’s and financial markets’ future.

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