Could PCE inflation data determine the Feds next move?

Today, the focal point in the economic calendar is the eagerly awaited release of the Personal Consumption Expenditures (PCE) inflation data from the United States scheduled for 13:30 GMT. This reading for October is notably delayed compared to the recently disclosed November inflation data from most European countries but despite the delay, the market is closely monitoring this metric as it is the Federal Reserve's preferred measure. The current reading is not anticipated to significantly alter the U.S. central bank's stance on future policy as the path to achieving the 2% inflation target is perceived as lengthy, suggesting that Federal Reserve Chair Jerome Powell's communication and policy stance are unlikely to change in response to an excessive decline or increase in the inflation figures.

Market expectations are aligned for a decline in U.S. inflation for October, with PCE inflation expected to drop to 3.0% year-on-year from the previous 3.4% year-on-year. Core PCE inflation, excluding volatile food and energy components, is also expected to decrease to 3.5% year-on-year from 3.7% year-on-year, while the monthly core reading is forecasted to rise by 0.2% month-on-month, following a previous increase of 0.7% month-on-month. Simultaneously, Eurozone inflation data for November has been published, indicating a decrease to 2.4% year-on-year from 2.9% year-on-year, aligning with expectations of 2.7% year-on-year and although inflation in the Eurozone remains above target, the core inflation reading for November is the lowest since Q1 2021. A PCE inflation reading in line with expectations may impact the recent dollar rally, but any deviation could prompt hawkish sentiments at the Federal Reserve, questioning the adequacy of current interest rates and once again bring the possibility of a final rate hike.

In the context of these developments, the EURUSD currency pair is experiencing its most significant weakening since October 24, approaching the critical level of 1.0900 and key support just below it. However, it is important to remain cautious considering the current dynamics in U.S. yields (inverted TNOTE), which do not currently indicate a compelling case for further declines.