Dollar: Core PCE and Warsh Remarks in Focus – OCBC

The US dollar index is currently trading near 99.0, with market sentiment turning cautious. OCBC strategists Sim Moh Siong and Christopher Wong note that recent declines in energy prices have helped lower bond yields in the US and Europe, supporting a more moderate macro backdrop, and have not yet triggered widespread concerns over dollar depreciation. Investors' attention is now fixed on this week's key events.

**Inflation metric assessment framework sparks market debate**

Federal Reserve Chair Warsh's remarks on inflation assessment are emerging as a new market variable. According to reports, Warsh has previously suggested that to achieve the 2% inflation target, he would need to reference a broader set of data than the Personal Consumption Expenditures (PCE) price index, and mentioned potential adjustments to the inflation strategy framework after January next year. These comments quickly ignited widespread discussion among investors and economists. JPMorgan Chief US Economist Michael Feroli stated bluntly in a report that the discussion appears to confirm external concerns that the Fed may be redefining the inflation challenge. The market is closely monitoring his Jackson Hole speech for further clues on the Fed's reaction function and its commitment to the 2% inflation target.

**Core PCE data emerges as key short-term guide**

Beyond Warsh's remarks, the upcoming US core PCE price index is equally a market focus. As the Fed's long-preferred inflation gauge, this data will directly influence market expectations for the interest rate path. Analysts believe Fed officials appear to be gradually moving closer to raising rates to combat persistent inflation, but are expected to hold rates steady at this month's meeting. BMO Capital Markets Deputy Chief Economist Michael Gregory even described Warsh's first post-meeting press conference as "must-see TV," underscoring the importance of this communication. If the data or remarks shift market assessments of the Fed's policy outlook, they could become a primary source affecting dollar support and volatility.