- The underlying Personal Consumption Expenditure (PCE) Price Index will increase 0.3% monthly and 2.6% annually in March.
- Markets see a strong chance that the Federal Reserve will keep the official interest rate unchanged in June.
- The markets' reaction to these data could be ephemeral.
On Friday, at 12:30 GMT, the US Bureau of Economic Analysis (BEA) will publish the underlying price index for personal consumption expenditure (PCE), the US Federal Reserve's (Fed) preferred measure of inflation.
What to expect from the Federal Reserve's preferred PCE inflation report?
The price index of PCE Core, which excludes food and energy price volatility, is considered the most influential measure of inflation in terms of the Fed's positioning. The index is expected to rise 0.3% monthly in March, matching the increase of February. Core PCE for March is also expected to grow at an annual rate of 2.6% versus 2.8% previously, while headline PCE inflation would increase from 2.5% to 2.6% annually.
The Federal Reserve's revised Summary of Economic Projections (SEP), also known as the dot chart – released alongside the monetary policy statement following the March meeting – showed that policymakers expect core PCE inflation stands at 2.6% annually at the end of 2024, compared to the forecast of 2.4% in the December SEP.
On Thursday, the BEA reported that the core PCE price index rose 3.4% quarterly in the first quarter, at a much stronger pace than the 1.8% increase seen in the final quarter of 2023. The reaction Market initial reaction to this data helped the US Dollar (USD) gain strength against its rivals. Since the quarterly figures have already been released, it is likely that markets will pay little or no attention to the monthly PCE inflation figures.
Looking ahead to PCE price index data, “another firm rise in March CPI inflation will likely translate into a still firm 0.25% monthly rise for core PCE, although we note that the risk to our forecast is at least rise,” TD Securities analysts noted in a weekly analysis, adding: “The PCE supercore is likely to rebound to 0.30% monthly after a modest 0.18% advance in February. On the other hand, personal spending is likely. finished the quarter on a strong note, expanding again at a solid pace in March.”
When will the PCE inflation report be released and how could it affect EUR/USD?
PCE inflation data will be released at 12:30 GMT. The monthly core PCE price index is the Fed's preferred inflation indicator as it is not distorted by base effects and provides a clear view of core inflation by excluding volatile items. Therefore, investors pay close attention to the monthly underlying PCE data.
CME Group's FedWatch tool shows that markets are currently pricing in more than 80% the probability that the Fed will keep the policy rate at 5.25%-5.5% in June. However, the monthly PCE data for March is unlikely to significantly influence market expectations, especially after the release of the quarterly data. However, should the monthly PCE price index rise less than expected, the immediate reaction could trigger short-lived dollar weakness. On the other hand, market positioning suggests there is not much room left for further USD strength if the data surprises to the upside.
FXStreet analyst Eren Sengezer offers a brief technical outlook for EUR/USD and explains:
“The 200-day SMA and the 50-day SMA form strong resistance for EUR/USD at 1.0800. As long as this level remains intact as resistance, technical sellers could try to maintain control. A on the downside, 1.0650 (static level) is lined up as provisional support before the next support at 1.0600 (2024 low set on April 16) should EUR/USD manage to stabilize above 1.0800. , buyers could remain interested and open the door to a prolonged rebound towards 1.0900 (psychological level, static level) and 1.0950 (static level since March).
economic indicator
Personal consumption expenditures – Price index (annual)
Personal Consumption Expenditure (PCE), published monthly by the US Bureau of Economic Analysis, measures changes in the prices of goods and services purchased by consumers in the United States. The annual reading compares the prices of the reference month with those of the previous year. Price changes can cause consumers to switch from one good to another, and the PCE deflator can take these substitutions into account. Therefore, it is the inflation indicator preferred by the Federal Reserve. Typically, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.
More information.
Last post: Fri Mar 29, 2024 12:30
Periodicity: Monthly
Current: 2,5
Consensus: 2 ,5%
Former: 2 .4%
Fountain: US Bureau of Economic Analysis
US Dollar FAQ
What is the US Dollar?
The United States Dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions.
After World War II, the USD took over from the pound sterling as the world's reserve currency.
How do the decisions of the Federal Reserve affect the Dollar?
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
What is Quantitative Easing and how does it influence the Dollar?
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of interest rates is unlikely to achieve the necessary result. It was the Fed's weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
What is quantitative tightening and how does it influence the US dollar?
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
