August PCE cools to 3.0%: US inflation surprises soft and the dollar loses steam

Good morning!

August PCE prints soft, draining fuel from the dollar

The number that mattered came in dovish: core PCE for August rose 3.0% year-on-year versus 3.3% expected, with the headline easing to 3.4% against 3.7%. Three tenths below consensus on both lines.

That is the inflation read the market wanted to keep the Fed's easing path alive. The dollar softened at the open and the 10-year yield slipped four basis points to 5.22% (the only nod I'll give bonds today).

The counterpoint is real: one print doesn't reverse a trend, and personal spending came in hot at +0.9% on the month, a sign the US consumer hasn't rolled over.

A muted reaction: greenback eases, peso barely moves

DXY sits at 101.11 and the peso gains little. USD/MXN opens near 18.02, roughly three centavos below yesterday's close of 18.0465, its weakest since March 30.

Watch the volatility split, because it's the real story. VIX at 15.72 says calm in equities, but MOVE jumped to 106.60: the fear still lives in the long end of Treasuries, the same engine that dragged the currency toward 18.

Bitcoin +2.05% and gold +1.46% climbing together make for an odd mix of risk appetite and haven demand. The Risk On composite rises from 55 to 58, lifted by stocks and crypto, capped by the 2.62pp rate differential and bond vol.

Booking the dollar call and stepping aside

Time to settle the score: the pro-dollar view from September 23 was validated — USD/MXN ran +4.20% over five business days and matured today. I read the firm-dollar pressure right.

Yesterday's condition, flipping neutral on a close below 17.60, never came close to triggering. I'm turning anyway, and I'll say it plainly: with that move banked and a PCE that takes the heat off the dollar, I'd rather stand aside than chase up near the ceiling.

It's uncomfortable to do it right after a 4.20% rally that still carries momentum; if the pair breaks 18.15, I'll have left the trend on the table.

I read it as a range: floor toward 17.90, ceiling at 18.15. I go directional again if the peso closes outside that band.

— See you tomorrow for Thursday's view.