- Core PCE inflation is expected to rise to 3.4% in May.
- USD stays resilient against its rivals following the FOMC-inspired rally.
- Gold could extend last week's slide if USD capitalizes on PCE Price Index data.
The US Bureau of Economic Analysis will release the Personal Consumption Expenditures (PCE) inflation report on Friday, June 25. Markets expect the Core PCE Price Index, the Federal Reserve’s preferred gauge of inflation, to rise to 3.4% on a yearly basis in May from 3.1% in April. On a monthly basis, the PCE Price Index and the Core PCE Price Index are forecast to arrive at 0.3% and 0.6%, respectively.
Historical PCE inflation data
In its updated Summary of Economic Projections (SEP), the Federal Reserve noted that it sees the annual Core PCE inflation averaging 3% in 2021, compared to 2.2% in March’s estimate, before returning to 2.2% in 2022.
In the press conference following the FOMC’s June meeting, FOMC Chairman Jerome Powell said that they are not dismissing the possibility that inflation will stay high for longer than expected. Moreover, the SEP revealed that the number of policymakers who see a lift-off in the fed funds rate from zero in 2023 rose to 13 from seven in March. In its policy statement, “the Committee will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer‑term inflation expectations remain well-anchored at 2%,” the Fed reiterated.
The hawkish shift seen in the FOMC’s policy outlook amid increasing price pressures provided a boost to the USD and the US Dollar Index (DXY) surged 2%, posting its largest weekly percentage gain since the beginning of the pandemic.
The DXY started the week on the back foot and retraced a portion of last week’s rally. Although investors seem to have already priced in high inflation expectations, a stronger-than-anticipated annual Core PCE Price Index reading could help the greenback continue to outperform its rivals. On the other hand, a soft inflation print could force the DXY to extend its correction. Nevertheless, a single figure is unlikely to cause market participants to change their views with regards to the Fed’s policy outlook and an adverse reaction in the USD could remain short-lived.
Eyes on gold
After losing more than 5% last week, gold staged a rebound during the first half of the week but struggled to break above key resistance levels, suggesting that buyers are struggling to take control of the price. Moreover, the Relative Strength Index (RSI) indicator stays well below 50, confirming the view that XAU/USD sellers are dominating the action.
A stronger-than-expected PCE reading could trigger a USD rally and cause gold to target $1,770 (Fibonacci 61.8% retracement of April-June uptrend) ahead of $1,756 (April 29 low, static level) and $1,745 (static level, previous resistance)
On the other hand, XAU/USD will need to clear the $1,795/$1,800 resistance area, where the Fibonacci 50% retracement level, 100-day SMA and the psychological hurdle coincide. In case gold manages to finish the week above that level, it could extend its rebound toward $1,825 (Fibonacci 38.2% retracement) and $1,835 (200-day SMA).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday
GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance.
Gold price sits at all-time highs above $2,230, US PCE eyed
Gold price hit all-time highs at $2,236 on Thursday to finish Q1 2024 with a bang. Most major world markets, including the US are closed due to Holy Friday, leaving volatility around Gold price highly subdued. US PCE inflation and Powell are awaited.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.