Marking Time Ahead of the U.S. PCE Price Deflator’s Release – Currency Thoughts
Marking Time Ahead of the U.S. PCE Price Deflator’s Release
August 29, 2025
There’s much for investors to ponder, but with about 2-1/2 hours remaining before the release of U.S. personal income and consumption, whose price deflator has the most influence on Fed policy among the various measures of inflation, financial markets are playing possum. Net overnight movement of the dollar against the euro, yen, Swiss franc, Aussie dollar, and Canadian dollar have been minimal, if at all. Somewhat larger gains of 0.5% and 0.4% have been made against the South Korean won and Mexican peso, and sterling is 0.3% softer.
Stocks and bonds have also been restrained but reflect concerns about Federal Reserve future independence from political will and ever-present tensions over tariff barriers and unresolved geopolitical conflicts that have become increasingly intertwined. Key U.S. stock market futures indices point to a drop of around 0.5% at the open. The consensus forecast of the core PCE deflator imagines a 5-month high just below 3.0%. The rumored top candidate to place Fed Chairman Powell, Fed Governor Waller, reaffirmed late yesterday his preference for an interest rate cut at the September FOMC meeting to be followed by continuing easing in subsequent meetings until the federal funds rate aligns with its neutral level.
In other stock markets overnight, Japan’s Nikkei closed 0.3% lower, but the Hong Kong Hang Seng index rose 0.3%. Key European stock markets are down 0.3-0.9%. Ten-year sovereign debt yields are up 2-4 basis points in the United States, Great Britain, Germany, Italy, France and Spain but two bps lower in Japan after several lackluster Japanese economic data were reported. The prices of Bitcoin and oil have sunk 2.5% and 0.8%.
Japanese data releases today showed
- A 1.6% monthly plunge in retail sales associated with their smallest 12-month increase (just 0.3%) in July.
- Industrial production also sank 1.6% on month, their weakest outcome in 8 months, and were 0.9% lower than a year earlier in July.
- Tokyo core consumer price inflation fell to 2.5% in August from 2.9% in July and 3.6% as recently as May.
- Although consumer confidence improved to a 7-month high, the August reading of 34.9 wasn’t much above last April’s 26-month low of 31.2.
- Housing starts in July (-9.7%) posted their fourth straight on-year decline, while a 19.0% on-year drop in construction orders was the deepest slide in 10 months.
- One bright spot was the July jobless rate, a 67-month low of 2.3%.
South Korean retail sales and industrial production grew in year-on-year terms by 2.5% (a 29-month high) and 5.0% 9most in 3 months) during July.
Euroland consumer inflation expectations for the coming year in the July survey remained steady at the June survey’s 2.6% and not far from the low of 2.4% in the September 2024 poll. With this being the last business day of August, it may be useful to remember that after a year plus of substantial disinflation, September 2024 marked the cyclical trough in many measures around the world.
French GDP last quarter, according to a second estimate, rose 0.3%, same as the earlier figure, but by an upwardly revised 0.8% compared to a year earlier. The average 0.7% on-year increase in the first half of 2025 was down from an average growth rate in full-2024 of 1.1%. French CPI inflation in August slipped to an 8-month low of 0.9%, and the latest French producer price inflation rate — that being for July — was just 0.4%.
German July retail sales fell 1.5% on month (its worst result in 11 months) and was 1.9% higher than a year earlier. German import prices in July were 1.4% lower than a year previously.
Spanish consumer price inflation in August matched July’s 5-month high of 2.7%, and a 4.7% on-year increase of Spanish retail sales in July was the smallest gain in 3 months.
Italian consumer price inflation, which imploded from 11.8% in late 2022 to as low as 0.7% in September 2024, dipped 0.1 percentage point to 1.6% this months. Italy also confirmed a 0.1% second quarter dip in real GDP that resulted in a 5-quarter low year-on-year growth rate of 0.4%.
Swedish GDP grew 0.5% last quarter and was 1.4% above its year-earlier level.
Egypt’s central bank interest rate was cut late yesterday to 22% from 24% (see review).
And the National Bank of Kazakhstan today left its key interest rate unchanged at 16.5% in line with analyst expectations. Kazakhstani consumer price inflation of 11.8% in both June and July compares unfavorably with the 8.3% low last September and remains above the central bank’s medium term target of 5.0%.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: French and Italian GDP, Governor Waller, National Bank of Kazakhstan
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