The BEA of the US is preparing to publicly release the PCE Price Index data for April on Friday at 12:30 GMT, which is considered the Fed’s preferred measure of inflation. The expected monthly increase in the core PCE Price Index, excluding volatile prices of food and energy, is 0.1% after remaining unchanged in March. Over the past year, it is also expected to decrease slightly from 2.6% to 2.5%. Similarly, the annual headline PCE inflation is anticipated to decline from 2.3% to 2.2%.
The PCE inflation data is of great interest to the market as it is a factor in the Fed’s policy decisions. During the May meeting, Fed Chairman Jerome Powell acknowledged that inflation remains above their target and they expect it to continue to rise. Powell also stated that due to uncertainties surrounding tariffs, the best course of action is to wait for more clarity before making any policy changes. In anticipation of the PCE inflation report, TD Securities predicts a slight increase of 0.1% in core PCE prices for April, with previous data being revised higher. The headline PCE inflation is also expected to be soft at 0.06% for the month. Personal spending is expected to return to normal after a surge of 0.7% in March.
Earlier, New York Fed President John Williams expressed concern about high and persistent inflation becoming permanent. Meanwhile, Minneapolis Fed President Neel Kashkari supported keeping interest rates steady until more information is available on the impact of tariffs on inflation.
Market participants should take note of any surprising changes in the monthly core PCE Price Index as it is not affected by previous trends. A higher-than-expected reading of 0.3% or more could boost the USD, while a 0% or negative reading could have the opposite effect. According to the CME FedWatch Tool, there is currently a very low probability of a rate cut in June and a 25% chance in July. This suggests that the USD could continue to rise if the core PCE index exceeds expectations. On the other hand, if the PCE figure is weaker than expected, investors may reassess the likelihood of a rate cut in July, potentially weakening the USD.
Eren Sengezer, European Session Lead Analyst at FXStreet, gives a brief technical analysis for EUR/USD, stating that the RSI and 20-day SMA show no clear direction, with the ascending regression channel providing support at 1.1200. Resistance levels are at 1.1400, 1.1500, and 1.1575 respectively.