PCE

155 has become the latest 'glass ceiling' for the rapid rise of USD/JPY. And with a key US inflation report, BOJ meeting and potential for risk-off sentiment next week, this key level could be tested and prompt a response from Japan's central authorities.

Tensions surrounding the Middle East has unsettled markets. US indices such as the S&P 500 are on track for their worst week of the year, crude oil reached a fresh YTD high and the risk-off sentiment was even enough to knock gold from its record. Traders therefore need to be on guard for headline risks surrounding the Middle East next week, alongside the usual bouts of economic data and central bank meetings.

It could be an interesting week for the Australian dollar if caught between the crossfire of the RBNZ meeting, Fed talk and US inflation data. We also have an Australian inflation report to throw into the mix for good measure.

The US dollar shows the potential to retrace some of the week's losses in light of hawkish Fed comments. Although attention now shifts to the US PCE inflation report, Australian CPI and RBNZ interest rate decision and press conference.

The most notable reaction following the latest FOMC meeting was the reaction of bond markets, which continued to plunge and send yields higher. Not even the US dollar could extend its rally meaningfully despite the rise of yields. But global stock markets certainly took notice and fell in tandem as investors finally took the Fed seriously that interest rates are likely to remain higher for longer. So whilst we have US PCE inflation, consumer sentiment, GDP, retail sales and the likes of China PMIs and Australian CPI, it is likely to be how bond yields behave next week as to how important these economic data points become.

It's the last trading week of August, and it's fair to say that market conditions were more volatile and eventful than this time of year tends to provide. At the time of writing, we're yet to hear what Fed Chair Jerome Powell has to say, but it could certainly set the tone for next week's trade. And there is no shortage of data to kick off September, including US PCE inflation, GDP, and the ISM manufacturing survey. Final PMIs are also published for the US, UK, Europe, Japan, and Australia. And incoming RBA Governor Bullock speaks, and a host of Australian data includes CPI, retail sales, home loans, and capex.

Markets cannot get enough of US inflation data at present and what it means for the Fed. And that means today’s PCE figures are now likely the more important.

Today’s inflation data was higher than expected and the Fed is walking a thin line between lowering inflation and pushing growth lower.