On Friday, all eyes are on the forthcoming release of the core Personal Consumption Expenditures (PCE) Price Index by the US Bureau of Economic Analysis (BEA) at 12:30 GMT. This index holds significant weight as the preferred measure of inflation for the US Federal Reserve (Fed).
Expected in this report is insight into the core PCE Price Index, excluding the volatile influences of food and energy prices. Economists anticipate a 0.3% monthly increase for February, a slightly softer pace compared to January’s 0.4% uptick. An annual growth rate of 2.8% is also projected, consistent with the previous reading. Furthermore, headline PCE inflation is forecasted to rise to 2.5% year-on-year.
Recent revisions to the Fed’s Summary of Economic Projections (SEP) showed policymakers’ expectations of core PCE inflation hitting 2.6% by the end of 2024, up from the 2.4% forecast in December.
Fed Chairman Jerome Powell, addressing the post-meeting press conference, emphasized the need for greater confidence in inflation sustainably moving towards the 2% target before any policy rate adjustments. Powell attributed the strong inflation numbers in January to seasonal effects.
Previewing the PCE inflation report, Oscar Munoz, Chief US Macro Strategist at TD Securities, anticipates another solid gain, albeit lower than January’s figures.
Scheduled for release at 12:30 GMT, the PCE inflation data is closely watched by investors due to its exclusion of base effects and volatile items, offering a clearer view of underlying inflation trends.
The market’s sentiments towards a possible delay in the Fed’s policy pivot from May to June have been influenced by stronger-than-forecast Consumer Price Index (CPI) and Producer Price Index (PPI) readings alongside indicators of tight labor market conditions. However, the dot plot indicates policymakers still project a total 75 basis point reduction in the policy rate by the end of 2024.
Considering trading conditions will be thin on Easter Friday, assessing the immediate impact of the PCE data on the US Dollar‘s valuation may prove challenging. Nonetheless, any unexpected deviations from expectations could sway market perceptions regarding the likelihood of a policy hold in June.
Regarding EUR/USD, technical analysis suggests resistance around the 1.0830 level, with potential support at 1.0760 and 1.0700. Reclaiming 1.0830 could trigger a bullish trend towards 1.0900 and 1.0950 levels.
