Summary:

• US core PCE price index 0.2% M/M vs 0.2% exp
• Core Y/Y reading 1.4% vs 1.3% prior
• Gold drops below 1280 to hit lowest level of the week

The latest inflation data from the US has shown a small increase – as was expected – but the overall reading remains well below the 2% mandate set for the Fed. The core PCE price index M/M rose by 0.2% vs 0.2% expected against a prior reading of 0.2% (revised higher from 0.1% previously.) In Y/Y terms the rise for the core is 1.4% which was also inline with expectations and marked a 10 basis point rise on the prior reading, in this case 1.3%.

 Core PCE Y/Y has moved off its lowest level of the year but remains subdued. Source: Bloomberg

 Whilst this is a higher than expected reading, it remains substantially below the 2% target mandated to the Fed. From the chart below you can see there has been a sharp drop in this inflation metric this year. The decline is surprising given the persistent strength of the labour market as well as the depreciation seen in the USD since January and whilst Fed chair Yellen described the fall as “transitory” once more yesterday it remains not far from its lowest level in several years.

 Both the headline and core reading remain well below the 2.0% inflation target for the Fed. Source: XTB Marcobond

The markets have reacted positively to the release with the US dollar adding to recent gains and Gold falling to its lowest level of the week and dropping below the 1280 handle. Price is now threatening to end a series of higher lows seen in recent trade and could fall back to the prior support around 1265.  

 Gold has broken below a rising trendline since the release and in doing doing so fallen to its lowest level of the week. Source: xStation

For a more in-depth technical overview of Gold please view here.