The core Personal Consumption Expenditures (PCE) Price Index is set to rise in July, with markets expecting a 0.2% month-on-month increase and a 2.7% year-on-year growth. This data release will be crucial as the US Federal Reserve is already pricing in an interest rate cut for September.
What the PCE Index Means for the US Dollar
The core PCE Price Index is a key indicator for the Fed’s interest rate decisions, as it excludes volatile food and energy prices. A higher-than-expected PCE inflation data could provide support for the US Dollar, especially ahead of the upcoming Nonfarm Payrolls report.
Recent data on the Consumer Price Index (CPI) showed a 2.9% year-on-year increase in July, with core CPI rising by 3.2%. Analysts expect the core PCE inflation to remain under control, with prices advancing at a softer pace in July.
Market participants are closely watching the PCE inflation report, as it could impact the Fed’s decision on interest rates. A hotter-than-expected reading could lead to a USD boost, while a slower increase may trigger a sell-off.
Impact on EUR/USD Pair
The US Dollar has been weakening against major currencies, with the EUR/USD pair reaching a 13-month high near 1.1200. Market expectations of a Fed rate cut in September have already been factored in, but a stronger-than-expected PCE inflation data could shift sentiment.
Traders are likely to adjust their positions following the PCE report, as they prepare for the upcoming US employment data. The EUR/USD pair could see a correction if the USD receives a boost from the inflation data.
In summary, the PCE inflation data will play a crucial role in shaping the future direction of the US Dollar and the EUR/USD pair. Traders should closely monitor the release and be prepared for potential market reactions.