Inflation in the US, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, held steady at 2.7% on a yearly basis in April, the US Bureau of Economic Analysis reported on Friday. This reading matched March's increase and came in line with the market expectation. On a monthly basis, the PCE Price Index rose 0.3% as forecast.
The Core PCE Price Index, which excludes volatile food and energy prices, rose 2.8% on a yearly basis, matching analysts' estimate.
Other details of the report showed that the Personal Income grew 0.3% on a monthly basis in April, while Personal Spending increased by 0.2%.
Follow our live coverage of the US PCE inflation data and the market reaction.
Market reaction to PCE inflation data
The US Dollar came under modest bearish pressure with the immediate reaction. At the time of press, the US Dollar Index was down 0.2% on the day at 104.55.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.31% | -0.00% | 0.14% | -0.28% | -0.44% | -0.49% | 0.09% | |
| EUR | 0.31% | 0.33% | 0.41% | 0.04% | -0.16% | -0.19% | 0.39% | |
| GBP | 0.00% | -0.33% | 0.10% | -0.29% | -0.49% | -0.51% | 0.06% | |
| JPY | -0.14% | -0.41% | -0.10% | -0.36% | -0.55% | -0.62% | -0.03% | |
| CAD | 0.28% | -0.04% | 0.29% | 0.36% | -0.18% | -0.21% | 0.35% | |
| AUD | 0.44% | 0.16% | 0.49% | 0.55% | 0.18% | -0.05% | 0.50% | |
| NZD | 0.49% | 0.19% | 0.51% | 0.62% | 0.21% | 0.05% | 0.57% | |
| CHF | -0.09% | -0.39% | -0.06% | 0.03% | -0.35% | -0.50% | -0.57% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
This section below was published at 06:00 GMT as a preview of the US PCE inflation data.
- The core Personal Consumption Expenditures Price Index is set to rise 0.3% MoM and 2.8% YoY in April.
- Markets see the Federal Reserve keeping the policy rate unchanged in June and July.
- A soft PCE inflation report could weigh on the US Dollar with the immediate reaction.
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.
PCE index: What to expect in the Federal Reserve’s preferred inflation measure
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 April, matching March’s increase. April core PCE is projected to grow at an annual pace of 2.8%, while headline PCE inflation is forecast to hold steady at 2.7% (YoY).
The US Bureau of Labor Statistics reported earlier in the month that the Consumer Price Index (CPI) rose 3.4% on a yearly basis in April, while the core CPI increased 3.6% in the same period, down from 3.8% in March.
Previewing the PCE inflation report, “CPI and PPI data suggest core PCE inflation lost further momentum in April after a strong start to the year,” TD Securities analysts said. “Indeed, we look the core index to advance 0.22% m/m vs 0.32% in March and vs the core CPI's 0.29% April expansion. We've revised our forecast from an initial 0.25% estimate. We also look for the headline to rise 0.23% m/m while the supercore likely cooled to 0.26%.”
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 currently see virtually no chance of a Fed interest rate cut either in June or July. The probability of the US central bank leaving the policy rate unchanged in September stands at around 48%.
The market positioning suggests that the US Dollar (USD) faces a two-way risk heading into the event. In case the monthly core PCE rises more than 0.3% in April, the immediate market reaction could cause investors to refrain from pricing in a rate reduction in September and help the USD outperform its rivals. On the other hand, a reading of 0.2%, or lower, could trigger a USD selloff ahead of the weekend and open the door for a leg higher in EUR/USD.
FXStreet Analyst Eren Sengezer offers a brief technical outlook for EUR/USD and explains:
“Although EUR/USD edged lower in the first half of the week, the Relative Strength Index (RSI) indicator on the daily chart holds slightly above 50, highlighting a lack of bearish pressure. Following the uptrend that ended on May 16, the pair stabilized above the 1.0780-1.0800 region, where the 50-day, 100-day and 200-day Simple Moving Averages (SMA) are located. If EUR/USD drops below that area and starts using it as resistance, technical sellers could take action. In this scenario, 1.0700 (psychological level, static level) could be seen as the next bearish target before 1.0600 (2024-low set on April 16).”
“On the upside, resistances are located at 1.0900 (static level, psychological level), 1.0950 (static level) and 1.1000 (psychological level, static level). For buyers to remain interested, however, the 1.0780-1.0800 area needs to stay intact as support.”
Economic Indicator
Core Personal Consumption Expenditures - Price Index (YoY)
The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.
Read more.Next release: Fri Jun 28, 2024 12:30
Frequency: Monthly
Consensus: -
Previous: 2.8%
Source: US Bureau of Economic Analysis
After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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