In the US, inflation, measured by the change in Personal Consumption Expenditures (PCE) Price Index, rose to 2.5% annually in February, as reported by the US Bureau of Economic Analysis on Friday. This figure matches January’s increase and meets market expectations. Every month, the PCE Price Index saw a modest rise of 0.3%, slightly below the anticipated 0.4%.
The core PCE Price Index, which excludes volatile food and energy prices, also saw a 2.8% increase yearly, in line with analysts’ estimates. The monthly figure aligned with expectations at 0.3%. January’s core PCE Price Index was revised upward to 2.9% YoY and 0.5% MoM.
Market Response to PCE Inflation Data
The Easter holiday led to limited market reaction to US inflation figures, with the US Dollar experiencing mild selling pressure. Despite this, the Dollar is set to end in March with significant gains. The news suggests a challenging scenario for those expecting imminent rate cuts in the US. The upward revision in January and the February data indicate that the Federal Reserve may maintain higher rates for longer. Investors are awaiting employment-related data next week, which may influence policymakers’ rate-cut decisions. Consequently, there’s a possibility of postponing rate cuts beyond June or implementing only two modest 25 basis points (bps) cuts by 2024. Stock futures ticked lower in response to the news, signalling fresh concerns.
US Dollar Performance This Month
The table below illustrates the percentage change of the US Dollar (USD) against major currencies this month, with the Dollar showing weakness against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.04% | -0.08% | -0.23% | -0.54% | 0.76% | 1.62% | 1.86% | |
| EUR | -0.05% | -0.13% | -0.30% | -0.59% | 0.73% | 1.57% | 1.82% | |
| GBP | 0.08% | 0.12% | -0.17% | -0.46% | 0.85% | 1.70% | 1.94% | |
| CAD | 0.24% | 0.30% | 0.18% | -0.23% | 0.97% | 1.88% | 2.11% | |
| AUD | 0.54% | 0.58% | 0.45% | 0.28% | 1.30% | 2.14% | 2.38% | |
| JPY | -0.74% | -0.74% | -0.82% | -1.02% | -1.14% | 0.89% | 1.14% | |
| NZD | -1.62% | -1.61% | -1.71% | -1.89% | -2.04% | -0.90% | 0.24% | |
| CHF | -1.87% | -1.86% | -1.96% | -2.14% | -2.37% | -1.16% | -0.22% |
Previewing the Core PCE Price Index Data
The core Personal Consumption Expenditures Price Index will rise by 0.3% MoM and 2.8% YoY in February. Market expectations lean toward a 25 basis points rate cut by the Federal Reserve in June. The Summary of Economic Projections (SEP) revealed an upward revision of the end-2024 core PCE forecast to 2.6% from 2.4%.
Expectations for the PCE Inflation Report
The core PCE Price Index, the Fed’s preferred inflation measure, is closely watched by investors. It is anticipated to grow by 0.3% every month in February, slightly softer than January’s increase. The annual pace of February core PCE is forecasted to remain at 2.8%. The revised Summary of Economic Projections indicates policymakers’ expectations for yearly core PCE inflation at 2.6% by the end of 2024.
Potential Impact on EUR/USD
The PCE inflation data is scheduled for release at 12:30 GMT. Investors pay close attention to the monthly core PCE figure, which offers insights into underlying inflation trends. A stronger-than-expected increase in the core PCE Price Index could boost the USD, while a weaker-than-expected rise might weigh on the currency. Technical analysis for EUR/USD suggests resistance at 1.0830, with support levels at 1.0760 and 1.0700.
