The release of softer-than-expected US Personal Consumption Expenditures (PCE) inflation data on Wednesday triggered notable market reactions across currencies and commodities. The annual headline PCE inflation for August remained unchanged at 3.4%, below the 3.7% forecast, while the core PCE index held steady at 3% year-on-year, also undercutting the 3.3% market estimate. July's readings for both headline and core PCE were revised lower to 3.4% and 3% respectively, from previously reported 3.7% and 3.3% [1][3]. These figures initially pressured the US Dollar, leading to rebounds in AUD/USD and GBP/USD, and a brief uptick in silver prices [1][2][3].
However, the move was short-lived as stronger US economic data emerged. ADP reported a private-sector employment increase of 90K jobs in September, surpassing the 70K expected and accelerating from August's revised 36K gain. US GDP growth for Q2 was revised up to 2.2%, beating the 1.5% forecast and previous estimate, and showing acceleration from Q1's 2.1% pace [1][3]. These robust figures reinforced the resilience of the US economy and shifted market focus back to the possibility of further monetary tightening by the Federal Reserve.
Market expectations for an October Fed rate hike dropped sharply, with CME FedWatch tool showing a 35% chance, down from nearly 51% a day earlier and 71% a week ago [1]. Prime Terminal data cited in source [3] puts the odds at 66% for a hold and 34% for a hike at the October 28 meeting. However, expectations for a December hike increased to nearly 60%, up from 49.4% previously [1]. This shift helped the US Dollar recover from its initial post-PCE decline, reversing gains in AUD/USD and GBP/USD, and weighing on non-yielding assets like silver [1][2][3].
Silver (XAG/USD) traded under pressure around $60.38, set to close September with a loss of nearly 9%. Technical analysis indicates a bearish bias, with the price below key moving averages and momentum indicators pointing to continued weakness. Initial support is seen near $60, with deeper floors at $55 and $50, while resistance levels are at $63, $65, and $73 [2].
In the UK, Q2 GDP improved to 0.5% QoQ, above the expected 0.4%, providing some relief for Pound buyers. GBP/USD rose 0.42% to near 1.3280 after the US inflation data, but technical analysis suggests the pair remains in a bearish tone, trading below major moving averages and resistance levels [3]. Money markets are pricing in 33 basis points of tightening from the Bank of England by the end of 2026 and over 100 basis points by the end of next year [3].
Analysts at Commerzbank argue that the latest data reinforce the case for policy patience from the Reserve Bank of Australia (RBA), as softer inflation and housing strain curb Aussie tailwinds [1].
CONCLUSION
Softer US PCE inflation data initially weakened the US Dollar and boosted assets like the Pound and silver, but stronger US employment and GDP figures quickly reversed these moves. Market expectations now favor a Fed rate hike later in the year, supporting the Dollar and pressuring non-yielding assets. The event has high market impact, with shifting rate hike probabilities and technical signals pointing to continued volatility across major currency pairs and commodities.