US dollar initially pop on US economic data, then fades to session lows

<p>The US dollar initially rallied after the dual releases of PCE inflation data and durable goods orders. The latter was strong and that initially carried the day but a closer look at PCE put the focus back on inflation and the likelihood the Fed will reach its target sooner.</p><p>PCE core inflation rose 3.2% y/y, which was below the 3.3% expected. In addition, the monthly number at 0.1% (0.09% unrounded) was below 0.2% expected.</p><p>Importantly, the next three months will have a tailwind on core inflation as they will lap Dec, Jan and Feb 2023 numbers of +0.3%, +0.6% and +0.3%, respectively. As those numbers fall off, it will further pull core inflation to target (and with headline inflation starting at 2.6%, it could be at target by April).</p><p>The market is increasingly coming to the conclusion that inflation has been slain, and that the Fed now has 550 basis points of ammunition in case of economic softness. That's a big Fed put and similar dynamics are in place throughout the globe, creating the conditions for a period of strong growth.</p><p>EUR/USD initially fell to 1.1002 after the data but later rebounded to 1.1040. Eyes are on 1.1017, which was the November high that finally broke a short time ago.</p>

This article was written by Adam Button at www.forexlive.com.