The core Personal Consumption Expenditures Price Index is expected to rise by 0.3% on a monthly basis and 2.8% on a yearly basis in April. This index, which excludes volatile food and energy prices, is considered to be the most important measure of inflation for the Federal Reserve (Fed) and could impact Fed policy decisions. The release of the PCE inflation report will be closely watched by investors, as it could have a significant effect on the US Dollar.
Analysts predict that core PCE inflation may have lost momentum in April, following a strong start to the year. The Consumer Price Index (CPI) and Producer Price Index (PPI) data suggest that core PCE inflation may have slowed down in April compared to March. A weaker-than-expected core PCE inflation report could lead to a decline in the US Dollar, while a stronger report could cause the USD to outperform its rivals.
Markets are currently pricing in a low probability of a Fed interest rate cut in June and July, with around a 48% chance of rates remaining unchanged in September. The USD faces a two-way risk heading into the PCE inflation report, depending on the outcome of the core PCE data. A higher-than-expected core PCE could lead to a USD rally, while a lower reading could trigger a USD sell-off.
Technical analysis of the EUR/USD pair suggests that the RSI indicator on the daily chart is slightly above 50, indicating a lack of bearish pressure. The pair is currently consolidating above the 1.0780-1.0800 region, where key moving averages are located. A drop below this area could signal further downside for EUR/USD, with support levels at 1.0700 and 1.0600. On the upside, resistance levels are at 1.0900, 1.0950, and 1.1000, with the 1.0780-1.0800 area acting as key support.
Overall, the PCE inflation report could have a significant impact on the USD and EUR/USD pair, depending on the outcome of the core PCE data. Investors will closely watch the release of the PCE index to gauge the Fed’s stance on monetary policy and its implications for the US Dollar.
