The US dollar is at an inflection point. Core PCE data today is key.

The US dollar is at an inflection point
Core PCE data today is key
The NFP report might miss expectations

Today marks the last trading day of the month. As usual, it means that volatility in financial markets will increase, especially during the London and North American sessions.

The US dollar’s volatility was a main driver for the cryptocurrency market this year. For instance, the dollar weakened since last October, as reflected by the EUR/USD bouncing from 0.95 and rallying to 1.12. At the same time, Bitcoin rallied too.

But as the EUR/USD could not hold above 1.12, nor did Bitcoin and other cryptocurrencies hold at their 2023 highs. In some cases, some cryptocurrencies reversed all of their gains against the dollar – and some more.

Therefore, it is clear that what happens with the US dollar also moves the cryptocurrency market. This week, despite having just two trading sessions left, the US dollar might move aggressively on two pieces of economic data:

Core PCE Price Index m/m
August NFP report

Core PCE Price Index

The PCE data is the Fed’s favorite way of interpreting inflation. It shows the change in the price of goods and services purchased by consumers but leaves out food and energy prices. The data will be released later today in the North American session.

The market expects it at 0.2% MoM, but the risk is that it will be lower. Jerome Powell, the Fed Chair, stated at the Jackson Hole this August that he believes inflation has peaked. If that is the case and the PCE data confirms it, the dollar might take a hit.

August NFP report

The second part of the Fed’s mandate deals with job creation. For the Fed to stop hiking the funds rate, it must see a softening labor market.

So far this week, both the JOLTS report and the private employment have disappointed. Therefore, the bias is that the NFP report will also come on the soft side. In such a case, the dollar’s weakness should accelerate.