US Dollar: Core PCE and Warsh remarks in focus – OCBC

OCBC Bank strategists Sim Moh Siong and Christopher Wong note that lower energy costs have contributed to a decrease in US and European yields, fostering a more stable macroeconomic environment without raising concerns about USD devaluation. Investors are closely monitoring US core Personal Consumption Expenditures (PCE) Price Index and Federal Reserve Chair Jerome H. Warsh's remarks at the Jackson Hole symposium, as the Fed's response to inflation and its dedication to maintaining a 2% inflation rate could impact USD strength and volatility.

Lower energy prices have also aided in reducing US and European bond yields, suggesting that a healthier economy, rather than Treasury maneuvers like surprise buybacks, can keep yields low without increasing fears of USD devaluation and subsequent market instability. The primary focus for traders today is the US core PCE inflation data, which is expected to remain lower than anticipated, yet it might still maintain a degree of hawkishness within the Fed, even if no changes are made in September.

Discussions about the Federal Reserve's approach to inflation control have intensified, prompting increased attention to Chair Warsh's Jackson Hole speech. If Warsh and other Fed officials address debasement concerns and reaffirm their commitment to achieving a 2% inflation rate, the USD might receive support. In the forex market, GBP/USD is trading with a bearish outlook below the 1.3650 level in the European session, having lost some of its previous day's gains.

Traders are eagerly anticipating the release of US PCE Price Index data, which could provide a fresh boost. EUR/USD is facing downward pressure near the 1.1650 mark in the European session. The US Dollar is experiencing a modest recovery due to profit-taking and Middle East uncertainties. US inflation, as measured by the PCE, and a revised report on Q2 GDP growth are expected to keep investors engaged on Wednesday.

Gold prices are experiencing slight declines below $4,650, but there is no strong bearish sentiment, and the metal remains within its recent trading range. The US Dollar gains momentum as traders adjust positions ahead of key economic releases, including the Personal Consumption Expenditures Price Index, and Federal Reserve Chair Warsh's insights at the Jackson Hole Symposium could provide further clarity on the future direction of interest rates.

Additionally, meme coins such as Dogecoin (DOGE), Shiba Inu (SHIB), and Pepe (PEPE) are losing their bullish momentum after their double-digit gains last week. Profit-taking has put downward pressure on DOGE and PEPE, while SHIB is holding steady near a support level.