OCBC Bank strategists Sim Moh Siong and Christopher Wong highlight that lower energy prices have helped pull US and European yields down, supporting a more benign macro backdrop without stoking USD debasement fears. Markets are watching US core Personal Consumption Expenditures (PCE) Price Index and Chair Warsh’s Jackson Hole remarks, as the Federal Reserve’s (Fed) reaction function and commitment to the 2% inflation target could influence USD support and volatility.

Core PCE and Jackson Hole watched

“Lower energy prices helped pull US and European bond yields lower.”

“This reinforces the view that a more benign macro backdrop, rather than interventions such as the Treasury’s surprise buyback announcement, can support lower yields across the curve without sparking concerns over USD debasement that increases USD volatility.”

“Today’s key event risk is US core PCE inflation. While the data is unlikely to alter the broader narrative of sticky inflation remaining modestly above target, it could keep hawkish Fed risks alive even if policymakers are expected to remain on hold in September.”

“Questions around the Fed’s reaction function, and growing concerns that it may be placing less emphasis on inflation control, have heightened market focus on Chair Warsh’s remarks at Jackson Hole.”

“The USD could find support if Warsh and other Fed officials push back against debasement concerns and reaffirm their commitment to returning inflation to the Fed’s 2% target.”