Ahead Today

G3: US PCE, Personal Spending, ECB Deposit Facility Rate Decision

Asia: -

Market Highlights

The Fed left the fed funds rate unchanged at 3.75-4.00%, a widely anticipated rate pause following the September's hike. However, the decision included two dissents in favour of another rate increase. Fed Chair Warsh reiterated the Fed’s commitment to returning inflation to 2% while highlighting the continued strength of the US economy. Markets continue to price around an 87% probability of a December rate hike. Meanwhile, Fed Chair Warsh said the Fed will only vote in seven policy meetings in 2027 and six in 2028, down from eight currently.

Attention now turns to US PCE inflation later today for signs that higher energy costs are feeding into underlying price pressures. Core PCE inflation stood at 3.0% yoy in August, while headline inflation was 3.4% yoy. With US retail gasoline prices remaining above $4/gallon, energy costs continue to pose upside risks to inflation. A firmer PCE print could further reinforce expectations for a December Fed hike and keep US yields elevated.

This remains an uncomfortable backdrop for several Asia FX. The US 10-year yield is holding near 5%, even as the 2-year eased around 4bps after the Fed meeting. US inflation surprise would strengthen the combination of high US yields, a firm dollar and worsening oil-import costs, keeping regional FX under pressure.

Meanwhile, the Bank of Thailand left its policy rate unchanged at 1.00% for a fourth straight meeting yesterday. This is in line with our expectations. The central bank expects Thailand’s GDP growth at 2.4% for 2026 and 2.1% for 2027. AI-driven demand could help support growth, with exports rising 24%yoy in September. However, the BOT noted that tourism and private consumption remain constrained by higher oil prices, elevated household debt and weak purchasing power. We remain cautious on the baht given the low yield, and we maintain our USD/THB forecast of 34.10 by end-2026, with risks tilted towards further THB weakness should the oil shock intensifies.

The rupiah faces an additional layer of domestic pressure, with protests over government spending policies and forest fires adding to an already challenging external backdrop. USD/IDR has returned to its June high, raising the risk of a technical break higher.

Elsewhere, the Korean won weakened sharply, falling 1.3% against the dollar and reversing some of its recent gains. The move comes as expectations for BOK tightening have been pared, with market pricing for rate hikes falling by nearly 60bps since mid-September.