AUSFOREX Ahead of Core PCE Inflation Data, Dollar Steadies

This Tuesday (September 27),The dollar rose against all other major currenciesAnd continue to be strong today.The dollar index has hit a 10-month high。

Pissouros believes that,The Fed's "keep rates higher for longer" approach continues to provide momentum for the dollarThe 10-year base rate surged to a 16-year high on Tuesday as data showed the economy was more resilient to stress and therefore could withstand more rate hikes.

Minneapolis Federal Reserve President Neil Kashkari said Monday that it is more likely than unlikely to happen"Soft Landing"He added that there is a 40% chance that a significant increase in interest rates is necessary to combat inflationThere is a 60% chance of raising interest rates only once and then staying the same。

However, Pissouros said the market sees less than a 50 per cent chance of another 25 basis points of interest rate hikes before the end of this round of tightening, while the market sees rates in 2024 to be lower than suggested by last week's dot plot. Pissouros believes this means there is still room for an upside correction, so if the upcoming US data continues to show a strong economy,The dollar could rise further。

The next focus for dollar traders could be Friday's August core PCE index, which is expected to slow slightly year-on-year to 3.9%, compared to 4.2% last month. Pissouros believes that while this could lead to a pullback in the dollar, it is unlikely to change the broader outlook, as even a slight slowdown in the index would still be well above the Fed's 2% target, combined with more data showing a strong economy, is unlikely to prompt Fed policymakers to change their "longer higher" thinking.

As U.S. Treasury yields continue to rise,The dollar/yen exchange rate also continued its upward trendIn the meantime, the Bank of Japan is restricting its government bond yields. As this gap widens, the exchange rate rises above 148.85 and is likely to continue to rise as the Bank of Japan appears in no hurry to adjust its policy.

Pissouros believes that the greater the corresponding rise in the exchange rate, the higher the likelihood of intervention. Suzuki, the chancellor of the exchequer, said they were "eagerly watching currency fluctuations". According to market rumours, the exchange rate reaches the round number 150.00, which may trigger action, but with the frequency of warnings not as high as last year, the level of intervention may increase.

In any case, with the Bank of Japan unwilling to change its policy anytime soon and Federal Reserve officials promising to keep interest rates higher, the gap between U.S. and Japanese yields is likely to continue to widen, meaning the dollar/yen decline due to intervention is unlikely to be permanent.

On Tuesday, all three major indexes on Wall Street fell by more than 1 percent asThe Federal Reserve's hawkish outlook on interest rates continues to apply pressureThis is especially true for high-growth companies that are typically valued by discounting future quarterly and annual cash flows.

Pissouros believes that,Interest rates are not the only driver of the stock marketConcerns about China's economic performance are also weighing on markets, and the prospect of another U.S. government shutdown could be a new source of uncertainty

The US Senate has voted to begin discussions on a measure to fund the government and keep it running through November 17. However, Republicans, who control the House of Representatives, appear reluctant to support the Senate proposal as plans continue to push their own partisan approach. If consensus is not reached this week, the government will be out of business for a decade4th closingThis will generate new uncertainties.