Markets Weekly Outlook - PMI and PCE in the Spotlight as US Dollar Remains Sensitive to US Labor Data

[Ben Graham]

Week in review - Fed Delivers Cut but Keeps Markets in Check

A busy week that was still dominated by the highly anticipated Federal Reserve Meeting. I have to say, hats off to Fed Chair Powell who kept markets in check whether you think he is right or wrong in his decision. Believe me there is support in both camps.

Fed Chair Powell in particular has been under pressure from the political sphere while labor data and mixed economic signals put the Fed Chair in the firing line. The Fed board itself faced a key decision as markets have turned extremely dovish in expectations ahead of the meeting.

The message from the Fed balanced market expectations while not giving too much away and pushing back to some degree at least, the questions of Fed independence.

So how did the markets perform?

The S&P 500 and the Nasdaq stock indexes are on track to have their third consecutive week of gains. This positive trend was fueled by the Federal Reserve's first interest rate cut of 2025 and hints that more relaxed monetary policies could be on the way. A renewed sense of optimism around stocks related to artificial intelligence (AI) also contributed to the market's rise.

However, the US stock market was a bit unsteady earlier in the day. Investors were still trying to understand the Fed's future plans and were paying close attention to comments made by Stephen Miran, the newest Fed governor and a White House economic adviser, who spoke on CNBC on Friday morning.

Also on Friday, US President Donald Trump and Chinese President Xi Jinping spoke on the phone, and afterward, Trump announced that they had made progress on a deal for TikTok. He also said that the two leaders had agreed to a meeting in person next month in South Korea.

So far in September, the three main US stock indexes—the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite—are all performing well. This is unusual because September has historically been a difficult month for the US stock market. Data shows that since the year 2000, the S&P 500 has, on average, lost 1.4% of its value during this month.

Most Read: Post-FOMC US dollar surge shifts global markets – DXY outlook

How has the US Dollar Reacted?

The US Dollar has been resilient since the decision and not surprising considering that what the Fed delivered was more hawkish than expected.

For the Fed decision impact, read Caution Over Speed: How the Fed Framed Its First Cut

However, the Fed met expectations by announcing its first rate cut of the year and indicating there would be two more cuts. This caused the dollar to immediately drop by about 0.5% against other currencies.

But within half an hour, the dollar had regained all of its lost value as US government bond yields started to rise again. This quick reversal was likely due to how traders were positioned in the market, rather than a change in how they viewed the Fed's announcement. It was a "trader's market"—meaning it was influenced more by short-term trading behaviors than by long-term economic signals.

The US Dollar index (DXY) is ending the week with 3 successive days in the green.

US Dollar Index Daily Chart, September 19, 2025

Source: TradingView.Com (click to enlarge)

Despite this rebound, the long-term outlook for the dollar doesn't seem very positive. The Fed has officially stated that the risk to its two main goals—stable prices and maximum employment—is now more focused on a weaker job market. With the expectation of two more rate cuts this year, bringing the policy rate down to 3.00-3.25%, the dollar could weaken. When the immediate market excitement dies down, the dollar is likely to fall back toward its lowest levels of the year and will become very sensitive to upcoming US job market data.

The Week Ahead - Global PMIs and US PCE

Next week is a busy one with Flash PMI survey data will provide a key focus for the markets in the coming week, though Friday's release of the US core PCE price index will also be eagerly awaited.

Other releases of note include revised US GDP numbers, consumer confidence data for the US and Europe, plus US, home sales, durable goods orders and inventories.

Asia Pacific Markets - Tokyo CPI

High impact data will be a bit sparse from Asia next week with the biggest data release being from Japan.

Tokyo CPI data will be released after the BoJ held rates steady but with a hawkish shift on Friday. Two officials on the central bank's board unexpectedly voted against the majority, showing a more "hawkish" view—meaning they are more concerned about inflation and are in favor of raising interest rates.

The market was also caught off guard by the central bank's announcement that it would begin selling its holdings of exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITs). This move is a strong sign that the Bank of Japan (BoJ) is serious about gradually returning its monetary policy to normal.

Based on these signals, I believe that an interest rate hike is a probability in October.

Global PMI and US PCE Data in Focus

Over the next week, several officials from the Federal Reserve (the Fed) will be speaking publicly. This is an important opportunity to hear their individual views on the economy after the Fed recently decided to resume cutting interest rates. They'll likely provide more details on how they see the risks to the economy, especially after signaling that their main forecast is for two more rate cuts this year and one in the next.

The most important data release will be the core personal consumer expenditure (PCE) deflator on Friday. This is the inflation measure the Fed prefers to use.

While the core consumer price index (CPI) rose a bit more than expected last month, the core PCE is likely to show a more modest increase. This is because it gives less weight to housing costs and includes different data like airline fares and healthcare costs. If the core PCE comes in as expected, it would give the Fed a clear signal to move forward with more rate cuts in October and December.

Additionally, new housing market data will be released. With more homes available for sale but still weak demand from buyers, there are growing concerns that home prices could start to fall.

Looking at the Euro Area and based on recent data, business activity in August, measured by PMIs (Purchasing Managers' Indexes), was very positive, primarily because of a significant increase in manufacturing.

However, a separate survey from the European Commission suggests that this boost might be a one-time event, as future expectations for the manufacturing sector weren't particularly strong.

For September, this creates a question for economists: Will the positive mood from the summer continue, or was August's good performance just a brief exception? We think the latter is very possible, especially given that the economy is currently growing at a slow pace.

For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (click to enlarge)

Chart of the Week - Gold (XAU/USD)

This week's Chart of the week is Gold.

From a technical standpoint, Gold pulled back after the FOMC meeting and retested the bull flag pattern breakout from Monday.

A bullish move since leaves gold on course for another week of gains above 1%. Gold is trading just shy of the $3700/oz handle.

A weekly close above this level seems unlikely this late in the day which leaves Gold in a precarious position heading into the new week.

Looking at the four-hour timeframe, Gold has recorded a change in structure but could be in for a short-term pullback before continuing higher.

Gold has seen its price target updated by many institutions as a combination of potential US Fed rate cuts, along with continued central bank buying and ETF inflows are likely to keep Gold supported.

That of course does not rule out small price retracements in the interim and that could come into play at some stage next week if profit taking does occur.

If the US Dollar index retreats next week that could be another factor which could influence the trajectory of Gold prices, so keep an eye on that.

Immediate support rests at 3666 before the 3656 and 3627 handles come into focus.

Looking at the upside and immediate resistance rests at 3700 before all-time highs at 3707 comes into focus.

Gold Four-Hour Chart Chart - September 19, 2025

Source:TradingView.Com (click to enlarge)

Trade Safe.

Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

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