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Core PCE inflation remains unchanged at 2.8% vs. 2.6% expected – Crypto News

Published

10 months ago

April 26, 2024

Dripp

Inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, rose to 2.7% on a yearly basis in March from 2.5% in February, the US Bureau of Economic Analysis reported on Friday. This reading came in above the market expectation of 2.6%.

The core PCE Price Index, which excludes volatile food and energy prices, held steady at 2.8% on a yearly basis, surpassing analysts’ estimate of 2.6%. On a monthly basis, the PCE Price Index and the core PCE Price Index both rose 0.3%.

Other details of the report showed that Personal Income grew 0.5% on a monthly basis in March, while Personal Spending rose 0.8%.

Market reaction to US PCE inflation data

These readings don’t seem to be having a significant impact on the US Dollar’s valuation. At the time of press, the US Dollar Index was up 0.12% on the day at 105.70.

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Australian Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.70%	-1.09%	-0.69%	-1.83%	1.33%	-1.04%	0.09%
EUR	0.68%		-0.41%	-0.01%	-1.13%	2.00%	-0.35%	0.76%
GBP	1.06%	0.37%		0.37%	-0.75%	2.37%	0.02%	1.14%
CAD	0.68%	-0.02%	-0.38%		-1.14%	1.99%	-0.36%	0.76%
AUD	1.79%	1.11%	0.74%	1.13%		3.09%	0.77%	1.88%
JPY	-1.34%	-2.04%	-2.45%	-2.03%	-3.18%		-2.40%	-1.26%
NZD	1.02%	0.34%	-0.05%	0.35%	-0.80%	2.32%		1.10%
CHF	-0.07%	-0.76%	-1.14%	-0.75%	-1.91%	1.25%	-1.10%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

This section below was published as a preview of the US PCE inflation data at 06:00 GMT.

The core Personal Consumption Expenditures Price Index is set to rise 0.3% MoM and 2.6% YoY in March.
Markets see a strong chance of the Federal Reserve keeping the policy rate unchanged in June.
The market reaction to the data could remain short-lived.

The core Personal Consumption Expenditures (PCE) Price Index, the US Federal Reserve’s (Fed) preferred inflation measure, will be published on Friday by the US Bureau of Economic Analysis (BEA) at 12:30 GMT.

What to expect in the Federal Reserve’s preferred PCE inflation report?

The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase. March core PCE is also projected to grow at an annual pace of 2.6%, while the headline PCE inflation is forecast to tick up to 2.6% (YoY) from 2.5%.

The Federal Reserve’s revised Summary of Economic Projections (SEP), also known as the dot plot – published alongside the policy statement after the March meeting – showed that policymakers expect the annual core PCE inflation to be at 2.6% at the end of 2024, up from the 2.4% forecast seen in the December’s SEP.

On Thursday, the BEA reported that the core PCE Price Index rose 3.4% on a quarterly basis in the first quarter, at a much stronger pace than the 1.8% increase seen in the last quarter of 2023. The initial market reaction to this data helped the US Dollar (USD) gather strength against its rivals. Since the quarterly figures were already unveiled, markets are likely to pay little to no attention to the monthly PCE inflation numbers.

Previewing the PCE Price Index data, “another firm increase in March CPI inflation will likely result in a still firm 0.25% m/m gain for the core PCE — though we flag that the risk to our forecast is to the upside,” said TD Securities analysts in a weekly report and added:
“The PCE’s supercore likely rebounded to 0.30% m/m after a modest 0.18% gain in February. Separately, personal spending likely ended 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?

The PCE inflation data is slated for release at 12:30 GMT. The monthly core PCE Price Index gauge is the most-preferred inflation reading by the Fed, as it’s not distorted by base effects and provides a clear view of underlying inflation by excluding volatile items. Investors, therefore, pay close attention to the monthly core PCE figure.

The CME Group FedWatch Tool shows that markets are currently pricing in a higher-than-80% probability that the Fed will leave the policy rate unchanged at 5.25%-5.5% in June. Monthly PCE data for March, however, are unlikely to influence the market expectation in a significant way, especially following the release of the quarterly data. Nevertheless, in case the monthly core PCE Price Index rises less than forecast, the immediate reaction could trigger a short-lasting USD weakness. On the other hand, the market positioning suggests that there isn’t a lot of room left for further USD strength if the data surprise to the upside.

FXStreet Analyst Eren Sengezer offers a brief technical outlook for EUR/USD and explains:

“The 200-day Simple Moving Average (SMA) and the 50-day SMA form a strong resistance for EUR/USD at 1.0800. As long as this level stays intact as resistance, technical sellers could look to retain control. On the downside, 1.0650 (static level) aligns as interim support before next support at 1.0600 (2024 low set on April 16). In case EUR/USD manages to stabilize above 1.0800, buyers could remain interested and open the door for an extended rebound toward 1.0900 (psychological level, static level) and 1.0950 (static level from March).

US Dollar FAQs

The US 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 found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

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 in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering 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 in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.