The PCE inflation data is slated for release at 12:30 GMT. The monthly core PCE Price Index gauge is the most-preferred inflation reading by the Fed, as it’s not distorted by base effects and provides a clear view of underlying inflation by excluding volatile items. Investors, therefore, pay close attention to the monthly core PCE figure.
Stronger-than-forecast Consumer Price Index (CPI) and Producer Price Index (PPI) readings in January and February, combined with data that pointed to tight labor market conditions, caused markets to lean toward a delay in the Fed policy pivot from May to June. Nevertheless, the dot plot showed that policymakers still project the US central bank to cut the policy rate by a total of 75 basis points (bps) in 2024. Hence, markets are pricing in a more than 60% chance that the Fed will lower the policy rate by 25 bps to 5%-5.25% in June, according to the CME FedWatch Tool.
It will be tricky to assess the immediate impact of the PCE data on the US Dollar’s (USD) valuation because trading conditions will be thin on Easter Friday.
Even if the monthly core PCE Price Index rises at a stronger pace than expected, it might not be enough to cause investors to reassess the possibility of another policy hold in June. Nevertheless, it could still provide a boost to the USD, with markets doubting the size of the total reduction in the policy rate
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