The Fed’s preferred measure of inflation is the Core PCE print that comes out on Friday. Around 2012, the PCE index became the main inflation index used by the Federal Reserve to inform its policy decisions. Investors will be looking at this print to try to answer 2 crucial questions: will the Fed hike and pause rates in May and will the Fed cut rates this year?
Inflation fight
The Fed, like central banks around the world is determined to bring inflation down to its 2% target. Last month, the Core PCE price index fell to 4.6% for February. The Fed will want to see this figure dropping lower again this month in order to have reassuring signs that it is winning the inflation battle. The core reading is expected to stay at 4.6%, so investors will be watching carefully for any surprises in the print for clues as to the Fed’s path for policy rates.
The headline is expected to fall to 4.5%y/y from the prior reading of 5% and that will be in keeping with the gentle stepping lower in the reading there has been from last summer’s peak.
The opportunity
A clear opportunity would most likely present itself in gold. This is due to the fact that bond yields, inflation, and the USD all heavily influence gold prices. If the inflation print comes in much lower than expected that that could mean inflation expectations fall, the USD falls and bond yields fall. All of which is a natural support for gold. If the inflation print comes in much higher than expected then that could potentially send bond yields higher, inflation expectations higher, and the USD higher all of which is a natural headwind for gold. Therefore, watch gold price on an out of consensus print for a potential short-term trading opportunity.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
AUD/USD stays weak below 0.6600 on US Dollar demand
AUD/USD is trading on the back foot below 0.6600 in Asian trading on Monday. The pair shrugs off China's stimulus optimism and a risk-on mood, as the US Dollar remains in demand and drags it lower amid a quiet start to a big week.
USD/JPY pares gains to near 153.50 amid Japanese political uncertainty
USD/JPY retreats to near 153.50 early Monday after rallying hard to 153.90. The Japanese Yen fell to a fresh three-month low against its American counterpart after Japan’s longtime ruling party lost its majority for the first time in 15 years at Sunday's national election.
Gold buyers turn cautious, as a Big week kicks in
Gold price has lost its two-day recovery momentum, trading below $2,750 amid a quiet start to a big week on Monday. Gold buyers did find acceptance above the $2,740 static resistance on Friday but the further upside appears elusive on resurgent US Dollar demand.
Bitcoin $66,000 support remains strong
Bitcoin found support around its crucial level of $66,000, suggesting a potential recovery. However, Ethereum and Ripple show signs of weakness, and a close below their key support levels would continue their ongoing decline.
US elections: The race to the White House tightens
Trump closes in on Harris’s lead in the polls. Neck and neck race spurs market jitters. Outcome still hinges on battleground states.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.