- Annual Core PCE inflation is expected to rise to 2.9% in April.
- Investors will keep a close eye on US Treasury bond yields.
- Gold looks vulnerable to a deep correction on a strong PCE print.
The US Bureau of Economic Analysis (BEA) will release the Personal Consumption Expenditures (PCE) Price Index data on Friday, May 27. Investors see the PCE inflation retreating to 0.2% on a monthly basis from 0.5% in March and anticipate it edging lower to 2.2% annually from 2.3%. Additionally, the publication will include the monthly change in Personal Spending and Personal income as well.
More importantly, the US Federal Reserve’s preferred gauge of inflation, the Core PCE Price Index that excludes volatile food and energy prices, is expected to jump to 2.9% on a yearly basis from 1.8%.
Annual Core PCE Price Index
Inflation expectations continue to impact US T-bond yields
Earlier this month, the US Bureau of Labor Statistics reported that the annual Consumer Price Index (CPI) jumped to 4.2% in April from 2.6% in March. This sharp increase in CPI inflation provided a boost to the greenback and the US Dollar Index rose 0.7% on the day of publication, May 12. On the same day, the benchmark 10-year US Treasury bond yield gained nearly 5%.
Similarly, a higher-than-expected reading in PCE inflation, especially the core version on a yearly basis, could help the USD outperform its rivals as it would cause investors to start pricing a hawkish shift in the Federal Reserve’s forward guidance. On the other hand, the greenback is likely to weaken if the print’s divergence from the market consensus is not significant.
Although policymakers have been downplaying concerns over price pressures, the latest FOMC Minutes revealed that some participants were concerned about inflation rising to ‘unwelcome levels’ before providing sufficient evidence to induce a policy reaction. Meanwhile, Federal Reserve's Vice Chairman Richard Clarida told Yahoo Finance earlier in the week that April’s CPI print was a ‘very unpleasant surprise’ but reiterated that the Fed has tools to bring inflation down if needed. Furthermore, Fed’s Vice Chairman for Supervision Randal Quarles argued that inflation could meet the bar for tapering later this year.
Eyes on gold
Gold, which is generally seen as a hedge against inflation, remains as one of the most sensitive assets to fluctuations in US Treasury bond yields and changes in inflation expectations. After the CPI report, the XAU/USD pair lost more than 1% but didn’t have a difficult time staging a fresh rally. On Wednesday, gold touched its highest level since early January at $1,912 but ended up closing the day in the negative territory a little below $1,900 as the 10-year US T-bond yield gained traction and snapped a four-day losing streak.
Despite Wednesday’s retreat, the Relative Strength Index (RSI) indicator on the daily chart stays above 70, showing that gold is still overbought. The technical outlook suggests that a decline in gold prices on a strong PCE inflation reading is likely to be more severe than an increase supported by a weak PCE print. Moreover, investors could look for an opportunity to book their profits as gold is already up more than 6% in May.
On the downside, the initial support is located at $1,870 (static level). A daily close below that level could pave the way for a deeper correction toward $1,850 (Fibonacci 61.8% retracement of the January-March downtrend).
Strong resistance seems to have formed at $1,900 (psychological level). If gold manages to turn that level into support, $1,912 (May 26 high) could be seen as the next target ahead of $1,930 (static level).
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 drops toward 1.0700 after US jobs report

EUR/USD came under renewed bearish pressure in the second half of the day on Friday and declined toward 1.0700. Stronger-than-expected Nonfarm Payrolls (NFP) data helps the US Dollar gather strength ahead of the weekend and forces the pair to stay on the back foot.
GBP/USD extends slide below 1.2450 amid a stronger USD

GBP/USD dropped further and hit fresh daily lows below 1.2450 amid a stronger US dollar. The Greenback remains firm following the release of the US May jobs report. Despite losing almost 100 pips on Friday, GBP/USD is still on track for a weekly gain.
Gold falls below $1,960 as US yields rebound after US jobs data

Gold price turned south and declined below $1,960 on Friday. After the data from the US revealed that Nonfarm Payrolls rose 339,000 in May, the benchmark 10-year US Treasury bond yield gained more than 2% and recovered toward 3.7%, weighing heavily on XAU/USD.
China crypto community picks Ethereum, Arbitrum and BNB Chain as top protocols

Ethereum, Arbitrum and BNB Chain protocols are top picks for the Chinese crypto community, data from a report shows, a possible bullish catalyst for tokens related to these protocols as Hong Kong opens the door of crypto to retail investors.
LULU stock adds 15% on big Wall Street beat

Lululemon Athletica did it again. In something that has become quite predictable, LULU stock sailed 14.9% higher in Friday’s premarket to $377.20 after the prized athleisure brand posted a nearly 15% earnings beat for the first quarter.