US inflation, measured by the change in the personal consumption expenditures (PCE) price index, rose to 4.4% year-on-year in April from 4.2% in March, the US Bureau of Economic Analysis said on Friday. This figure was higher than market expectations of 3.9%.
Growth in the annual Core PCE Price Index, the Federal Reserve’s preferred measure of inflation, edged up to 4.7% from 4.6% in the same period, compared with analysts’ forecast of 4.6%. Both core PCE inflation and PCE inflation rose 0.4% month-over-month.
Further details of the report revealed that personal income rose by 0.4% month-on-month, while personal expenditure increased by 0.8%.
Market reaction
With the initial reaction, the US dollar index bounced off session lows and last lost 0.1% for the day at 104.10.
Meanwhile, the yield on the 10-year U.S. Treasury note rallied after the data, climbing to its highest level in more than two months above 3.8%.
According to CME Group’s FedWatch Tool, markets currently value a more than 50% probability that the US central bank will decide to raise rates by another 25 basis points in June.
United States Personal Consumption Expenditures – Price Index (MoM)
Personal expenses issued by the company Bureau of Economic Analysis, Department of Commerce is an indicator that measures the total expenditure of individuals. The level of spending can be used as an indicator of consumer optimism. It is also seen as a measure of economic growth: Personal spending does stimulate inflationary pressures, but can lead to higher interest rates. A high value is positive (or bullish) for the USD. Read more.
Next release: Fri Jun 30 2023 12:30:00 GMT
Frequency: Monthly
Source: US Bureau of Economic Analysis
- The price index for core personal consumption expenditures is expected to increase by 0.3% month-on-month in April.
- Markets see a strong likelihood that the Federal Reserve will leave its key interest rate unchanged in June.
- The US dollar could gain strength if PCE data confirms sticky core inflation.
Core Personal Consumption Expenditures (PCE) price index data from the United States, the Federal Reserve’s (Fed) preferred inflation measure, will be released by the Bureau of Economic Analysis (BEA) on Friday 26 May at 12:30 GMT.
What to expect from the Federal Reserve in the next PCE inflation report?
The price index for personal consumption expenditures excluding food and energy is expected to rise 0.3% month-on-month in April, matching the increase seen in March.
The annualized Core PCE price index for April is expected to remain unchanged at 4.6%. In addition, the main price index for personal consumption expenditures is expected to rise 0.4% month-on-month in April, while the year-on-year value is expected to rise 3.9%, down from the previous print of 4.2%.
The increase in the monthly data is expected mainly on the back of potentially strong data on personal income and personal spending, both of which are expected to grow at a healthy pace of 0.4% in April.
Although the Fed tracks the headline number, officials have repeatedly said that core PCE usually provides a better long-term indicator of where inflation is headed because it strips out prices that can be volatile over shorter time periods.
Commenting on inflation developments earlier in the week, “core inflation indicators haven’t changed much in recent months,” Federal Reserve President St. Louis James Bullard. “If inflation is not controlled, the Fed will have to do a lot more, it should err on the side of doing more,” Bullard added. In a similar vein, Minneapolis Federal Reserve President Neel Kashkari told CNBC that services inflation appears to be “pretty damn entrenched.”
On a preview of the potential impact of the PCE inflation data on the markets: “If there is a big miss in the data, then you would expect the USD to weaken on the expectation that the Fed will have to be less aggressive in pushing prices. rates” said Giles Coghlan, Chief Market Analyst for HYCM Group. “If the data comes in high and surprises the markets, investors will know that this keeps the pressure on the Fed to raise interest rates. If inflation gets high, you would typically expect US 10-year yields to rise, gold fall, the USD rises and the S&P500 falls.”
When will the Personal Consumer Expenditure Price Index report be out and how could it impact EUR/USD?
The release of the PCE inflation report is scheduled for May 26 at 12:30 GMT. After taking a dovish stance on the policy outlook in May, Federal Reserve (Fed) officials backed away from market expectations for a rate cut later this year. Although the CME Group’s FedWatch Tool shows markets are fairly confident the Fed will keep its key interest rate unchanged in June, rising U.S. Treasury yields and renewed American dollar (USD) strength suggests markets are reassessing the possibility that the Fed will hold off on a key rate cut in 2023. The FedWatch rate cut probability fell below 20% in September. this week from nearly 50% earlier this month.
Thus, the dollar should be able to hold a position against its major in the event of a monthly PC inflation came close to market expectations of 0.3%. On the other hand, a reading near 0% should confirm a pause in rate hikes in June and weigh on the USD by contributing to rate cut expectations.
FXStreet analyst Eren Sengezer offers a brief technical outlook for EUR/USD, explaining:
“EUR/USD has closed below the 100-day simple moving average (SMA) in the last three days, and the 20-day SMA is about to make a bearish crossover with the 50-day SMA. Additionally, the Relative Strength Index (RSI) is the order of the day diagram remains well below 40, confirming bearish bias.”
Eren also highlights important technical levels for EUR/USD: “On the downside, 1.0680 (static level) is leveling as the first technical support. A daily close below this level could bring in more sellers and open the door for an extended slide towards further static support at 1.0550 and 1.0500 (200-day SMA, psychological level).
“In the event that EUR/USD rises above 1.0800 (100-day SMA) and stabilizes there, market participants could consider this a bullish development. In this scenario, the next hurdle is located at 1.0900 (20-day SMA, 50-day SMA) before 1.1000 (psychic level).
Content related to PCE inflation
About the price index of basic expenses for personal consumption
Core personal consumption expenditures, published by the U.S. Bureau of Economic Analysis, represent the average amount of money consumers spend in a month. “Core” excludes seasonally volatile products such as food and energy in order to capture an accurate calculation of expenditure. It is an important indicator of inflation. A high value is bullish for the USD, while a low value is bearish.
