US PCE inflation to be key for subsequent rate hikes

Dollar is trading strong after FOMC statement last night indicated that FED is clearly on its path to hike rates at least once this year and if inflation do recovers subsequent hikes can be expected.

• Euro is down below 1.10 mark after yesterday's release and Yen is close to breaking its resistance around 124.3-124.5. Pound is relatively stronger so far but fallen sharply from 1.569 against dollar to 1.561.

Today at 12:30 GMT, along with US GDP, preliminary reading on personal consumption expenditure prices would be released.

Past trends -

• After solid gains in 2014, US core PCE inflation has slowed down this year as lower oil prices resulted lower prices from producers' end due to lower input costs. Core prices, after reaching as high as 2% in second quarter of 2014, inflation slowed to 0.8% in first quarter of 2015.

Expectations today -

• Today core prices are expected to bounce back to 1.6%

Impact -

• Though major focus will be on GDP number, better than expected PCE prices might provide additional boost, whereas weak number might sour it.
  
  
• With employment close to FED's normal level with dual mandate, inflation is likely to be the key consideration for subsequent rate hikes.
  
  
• Moreover improved inflation, in spite of lower commodity prices likely to indicate healthy improvement in demand.