U.S. PCE Inflation in Focus
Article published on December 20th, 2024 – 9:10AM UK Time
Today’s U.S. Personal Consumption Expenditures (PCE) report will be critical in shaping market sentiment, particularly as the Federal Reserve has reinforced its “higher-for-longer” stance on interest rates. The data will provide fresh insights into inflation trends and their implications for monetary policy, with potential ripple effects on the USD and key currency pairs.
Key Scenarios and Market Reactions
1. Surprise Drop in PCE Inflation
- Core PCE Price Index (MoM): 0.0% or lower.
- Core PCE Price Index (YoY): 2.7% or lower.
- Headline PCE Price Index (MoM): 0.0% or lower.Key Levels to Watch:
- Headline PCE Price Index (YoY): 2.2% or lower.
- Market Impact:
- Lower-than-expected inflation would counter the Fed’s
- hawkish messaging, softening the USD.
2. Higher-Than-Expected PCE Inflation
- Key Levels to Watch:
- Core PCE Price Index (MoM): 0.4% or higher.
- Core PCE Price Index (YoY): 3.1% or higher.
- Headline PCE Price Index (MoM): 0.3% or higher.
- Headline PCE Price Index (YoY): 2.7% or higher.
- Market Impact:
- Stronger-than-expected inflation would reinforce the Fed’s hawkish tone, driving USD strength.
- Expect USD/JPY buyers/EURUSD sellers to enter the market.
Seasonal USD Dynamics
It’s worth noting that late December tends to be a seasonally weaker period for the USD as year-end flows dominate market activity. However, significant deviations in PCE data could override this trend and catalyze intraday moves.
Conclusion
The U.S. PCE report will be a pivotal market driver today. A downside surprise in inflation could weaken the USD, particularly against the EUR, while stronger inflation figures are likely to boost USD demand, especially against the JPY. Traders should closely monitor deviations from expectations and prior data revisions for actionable opportunities.