Core PCE inflation falls to 2.9% compared to 3% forecast
U.S. inflation, as measured by changes in the personal consumption expenditures (PCE) price index, held steady at 2.6% on an annualized basis in December, the Bureau of Economic Analysis reported Friday.
The annual core PCE price index, the Fed’s preferred inflation indicator, eased from 3.2% in November to 2.9% during the same period, slightly below market expectations of 3%. On a monthly basis, both the PCE price index and the core PCE price index increased by 0.2%.
According to other details in the publication, personal spending rose 0.7% in December, while personal income rose 0.3%.
Market reaction to PCE inflation data
The US dollar index was an immediate reaction to these figures, recovering modestly from its daily low and was last down 0.12% on the day at 103.35.
US dollar price this week
The table below shows the U.S. dollar (USD)’s movements against major listed currencies this week. The US dollar was weakest against the Swiss franc.
| USD | EUR | GBP | cad | AUD | yen | new zealand dollar | Swiss Franc | |
| USD | 0.28% | -0.25% | -0.01% | 0.06% | -0.20% | 0.23% | -0.45% | |
| EUR | -0.28% | -0.52% | -0.29% | -0.23% | -0.48% | -0.05% | -0.73% | |
| GBP | 0.25% | 0.53% | 0.24% | 0.31% | 0.05% | 0.49% | -0.20% | |
| cad | -0.02% | 0.27% | -0.25% | 0.05% | -0.21% | 0.24% | -0.46% | |
| AUD | -0.08% | 0.18% | -0.33% | -0.09% | -0.28% | 0.16% | -0.53% | |
| yen | 0.29% | 0.56% | -0.02% | 0.21% | 0.27% | 0.44% | -0.27% | |
| new zealand dollar | -0.24% | 0.03% | -0.52% | -0.26% | -0.18% | -0.46% | -0.73% | |
| Swiss Franc | 0.45% | 0.72% | 0.20% | 0.46% | 0.53% | 0.26% | 0.70% |
Heatmap shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select Euro in the left column and move along the horizontal line to Japanese Yen, the percentage change displayed in the box represents EUR (base)/JPY (quote).
This section below was published as a preview of the US PCE Inflation report at 07:00 GMT.
- The core personal consumption expenditure price index in December is expected to rise by 0.2% compared to the previous month and by 3% compared to the same period last year.
- The market believes that the Federal Reserve is likely to freeze its benchmark interest rate in January and March.
- If PCE inflation continues to cool, the US dollar may remain vulnerable.
The US Federal Reserve’s (Fed’s) preferred inflation measure, the core personal consumption expenditures (PCE) price index, will be released by the US Bureau of Economic Analysis (BEA) at 13:30 GMT on Friday.
What to Expect from the Fed’s Preferred PCE Inflation Report?
The core PCE price index, which excludes volatile food and energy prices, is considered by the Fed to be a more influential measure of inflation. The December index is expected to rise 0.2% on a monthly basis, which is a slight increase from the 0.1% rise in November. Core PCE for December is also expected to show annual growth of 3%, down from 3.2% in November. The headline PCE price index is expected to rise 2.6% (YoY).
Previewing the PCE inflation report, “(W)e look for December PCE data to continue to support the idea of decelerating inflation. The core series rose 0.2% m/m, near-trend and below the 0.3% increase in core CPI. This is what TD Securities analysts said in their weekly report titled “Weekly Outlook: U.S. Macro Market Leaders.”
When will the PCE inflation report be released and what impact may it have on EUR/USD?
PCE inflation data will be released at 13:30 GMT. The monthly core PCE price index gauge is the Fed’s preferred measure of inflation, providing a clear view of underlying inflation that is not distorted by base effects and excludes volatile items. Therefore, investors pay close attention to key monthly PCE numbers.
Nonetheless, the PCE inflation figures are unlikely to provide any major surprises as the quarterly figures are already included in the Gross Domestic Product (GDP) report released on Thursday. On a quarterly basis, the core PCE price index in the 4th quarter rose 2% quarterly, consistent with market expectations and the 3rd quarter increase rate.
Market participants can therefore pay close attention to basic details such as personal spending and personal income figures for December.
Personal spending is expected to increase 0.4% on a monthly basis, following a 0.2% increase in November. During the same period, personal income was expected to increase by 0.3%. If both of these data releases are disappointing, investors could see this as a sign of weakening consumption, weighing on the US dollar (USD) for an immediate reaction. On the other hand, optimistic numbers are likely to support USD in the near term.
FXStreet analyst Eren Sengezer provides a brief technical outlook for EUR/USD and explains:
“The relative strength index (RSI) indicator on the daily chart failed to stabilize above 50 and then fell slightly to 40, reflecting a lack of buyer interest. The 200-day simple moving average (SMA) is aligned with the EUR/USD pivot level at 1.0850. If this level is confirmed as resistance, 1.0780-1.0770 (Fibonacci 50% retracement of the October-December uptrend) could be seen as the next bearish target ahead of 1.0700 (Fibonacci 61.8% retracement).
On the upside, strong resistance appears to have formed at 1.0930-1.0950 (20-day SMA, 50-day SMA, Fibonacci 23.6% retracement) before 1.1000 (psychological level, static level).”
Source: https://www.fxstreet.com/news/us-core-pce-inflation-preview-federal-reserve-preferred-price-gauge-looks-set-for-another-decline-in-december-202401260700
