Market Analysis

US Core PCE In Focus

With the Federal Reserve set to make its latest monetary policy announcement on Wednesday, markets will likely be playing close attention to today’s 1330h London time release of US Personal Consumption Expenditures (PCE) data. Traders will know that the Fed’s inflation target is 2 per cent, so it’s notable that a poll of economists by Bloomberg expects today’s core PCE index to rise to 2.0 per cent year-on-year in March from a prior 1.6 per cent increase. There is an argument that any such increase will owe much to the base effects of certain price falls last year dropping out of the data than to resurgent inflationary pressures in the here and now but that doesn’t mean the markets won’t still sit up and take notice.

Even though the Federal Reserve is expected to hold fire on a rate rise on Wednesday, the market currently thinks a June hike is already in the bag. With US Commodity Futures Trading Commission data continuing to show  the existence of a marked long euro/short US dollar position, traders might well be inclined to draw a contrast between the likely trajectory of US monetary policy and the European Central Bank’s current treading water approach and consider the potential implications for EURUSD. The contrast is increasingly glaring.

Written by Neal Kimberley, External Currency Analyst.