Core PCE Price Index, Decisive For End Of Month Flows

The monthly core PCE Price Index in the United States is expected today and has the power to shift the market sentiment. Because it represents the Fed’s favored inflation measure, traders watch it carefully.

If we are to summarise the trading month, there is one single theme that dominated financial markets – a weaker US dollar. The greenback fell to its lowest since the start of the trading year, giving back its modest gains from the first quarter.

As such, the EUR/USD pair rose from 1.17 in April to 1.2260 in May. Moreover, the GBP/USD broke above 1.42, and the AUD/USD regained the lost ground and threatened to break above 0.79 again.

The weak dollar pushed equities higher. The Dow Jones and the S&P500 are close to their all-time highs, rebounding from every single dip. It is fairly difficult to be bearish on equities considering the stream of positive economic data and the accommodative policies coming out of the United States.

On the one hand, the Fed shows no intention of removing the easy monetary stance anytime soon. On the other hand, the US government keeps pumping money into the economy. Yesterday, for example, the US administration announced that it will increase its 2022 fiscal year budget to $6 trillion and that it plans to keep doing so until it reaches $8.2 trillion by 2031.

In this context, European equities traded with a bid tone as well. Whatever happens in America has spillover effects in the developed world, despite some (minor) divergences in monetary policies. The biggest divergence comes from the fiscal space, but still, the European indices performed well in May. The FTSE 100 index holds above 7,000 points, the German DAX is bid above 15,400, and the French CAC40 trades with a bid tone as well, holding above 6,400 points.

Commodities also liked the weak dollar. Both gold and silver overperformed during the month, in line with inflation fears. The crude oil price remains bid as well, hovering around $65 on the back of stronger than expected economic perspectives both in the United States and in other parts of the world.

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Disclaimer: None of the content in this article should be viewed as investment advice or a recommendation to buy or sell. Past performance/statistics may not necessarily reflect future ...

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