Breaking: US core PCE inflation softens to 2.5% in April as forecast
Annual inflation in the United States (US), as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, declined to 2.1% in April from 2.3% in March, the US Bureau of Economic Analysis reported on Friday. This reading came in below the market expectation of 2.2%.
The core PCE Price Index, which excludes volatile food and energy prices, rose 2.5% in the same period, down from the 2.7% increase reported in March and in line with analysts' estimates. The PCE Price Index and the core PCE Price Index both rose 0.1% on a monthly basis.
Other details of the report showed that Personal Income and Personal Spending grew 0.8% and 0.2%, respectively, on a monthly basis in April.
Market reaction to US PCE inflation data
The US Dollar Index showed no immediate reaction to these figures and was last seen rising 0.1% on the day at 99.44.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.23% | 0.04% | -0.32% | -0.06% | 0.37% | 0.01% | -0.05% | |
| EUR | -0.23% | -0.17% | -0.59% | -0.28% | 0.19% | 0.11% | -0.27% | |
| GBP | -0.04% | 0.17% | -0.39% | -0.10% | 0.37% | 0.11% | -0.09% | |
| JPY | 0.32% | 0.59% | 0.39% | 0.27% | 0.79% | 0.49% | 0.34% | |
| CAD | 0.06% | 0.28% | 0.10% | -0.27% | 0.52% | 0.20% | 0.01% | |
| AUD | -0.37% | -0.19% | -0.37% | -0.79% | -0.52% | -0.06% | -0.46% | |
| NZD | -0.01% | -0.11% | -0.11% | -0.49% | -0.20% | 0.06% | -0.38% | |
| CHF | 0.05% | 0.27% | 0.09% | -0.34% | -0.01% | 0.46% | 0.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
This section below was published as a preview of the US Personal Consumption Expenditures (PCE) Price Index data for April at 06:00 GMT.
- The core Personal Consumption Expenditures Price Index is expected to rise 0.1% MoM and 2.5% YoY in April.
- Markets expect the Federal Reserve to hold the policy setting unchanged in June.
- Annual PCE inflation is forecast to edge lower to 2.2%.
The United States (US) Bureau of Economic Analysis (BEA) is set to release the Personal Consumption Expenditures (PCE) Price Index data for April on Friday at 12:30 GMT. This index is the Federal Reserve’s (Fed) preferred measure of inflation.
The core PCE Price Index, which excludes volatile food and energy prices, is projected to rise 0.1% on a monthly basis in April, after remaining unchanged in March. Over the last twelve months, the core PCE inflation is forecast to edge lower to 2.5% from 2.6%. Meanwhile, the headline annual PCE inflation is seen retreating to 2.2% from 2.3% in this period.
Anticipating the PCE: Insights into the Fed's key inflation metric
PCE inflation data is usually seen as a big market mover because it is taken into account by Fed officials when deciding on the next policy move. During the press conference following the May meeting, Fed Chairman Jerome Powell noted that inflation remains above their target and added that they expect upward pressure to persist. Citing “a great deal of uncertainty about tariffs,” Powell argued that the right thing for them to do is to await further clarity before taking the next policy step.
Previewing the PCE inflation report, TD Securities said: “We look for core PCE prices to remain subdued in April, rising 0.1% m/m after printing flat in March—though last month's data will be revised higher. Headline PCE inflation should also come in soft at 0.06%. On a y/y basis, we look for core PCE inflation to rise 2.6%. We also expect personal spending to mean-revert after front-loading led to a 0.7% m/m surge in March.”
New York Fed President John Williams said earlier in the week that he wants to avoid inflation becoming highly persistent because that could become permanent. Meanwhile, Minneapolis Fed President Neel Kashkari noted that he supports maintaining interest rates until there is some more clarity on the impact of higher tariffs on inflation.
How will the Personal Consumption Expenditures Price Index affect EUR/USD?
Market participants are likely to react to an unexpected reading in the monthly core PCE Price Index, which is not distorted by base effects. A print of 0.3% or higher MoM could support the US Dollar (USD) with an immediate reaction. On the other hand, a reading of 0% or a negative print could have the opposite effect on the USD’s performance against its major rivals.
According to the CME FedWatch Tool, markets currently see virtually no chance of a Fed rate cut in June, while pricing in about a 25% probability of a cut in July. Hence, the market positioning suggests that the USD has some room left on the upside if the monthly core PCE reading surprises to the upside. Conversely, investors could reassess the probability of a rate reduction in July if a soft PCE figure eases concerns that inflation remains sticky.
Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief technical outlook for EUR/USD:
“The Relative Strength Index (RSI) indicator on the daily chart holds slightly above 50, and EUR/USD fluctuates above the 20-day Simple Moving Average (SMA), reflecting a lack of seller interest. On the downside, 1.1200 (Fibonacci 23.6% retracement of the January-April uptrend, lower limit of the ascending regression channel) aligns as first support before 1.1015-1.1000 (Fibonacci 38.2% retracement, round level).”
“Looking north, resistance levels could be spotted at 1.1400 (static level), 1.1500 (static level, round level) and 1.1575 (April 21 high).”
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
FXStreet Team
FXStreet
