The Fed’s favorite inflation measure is coming!
Will this release lead to achieving the dollar’s gains during the week, or breaking them?
Here are some points to consider if you plan to trade the Friday report:
Focus on the event:
US core PCE price index for April 2023
When will it be released:
May 26, 2023 (Friday), 12:30 PM GMT
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
US Core PCE Price Index (MoM): Expectations 0.3% vs. 0.3% prior
US Core PCE Price Index (YoY): 4.6% expected vs. 4.6% prior
Related data since the last data event/release:
- retail For April: +0.4% m/m (+0.7% m/m expected) vs. -0.7% m/m
- producer price index (Producer Price Index) for April 2023 was 0.2% m/m (0.1% m/m forecast) vs. -0.4% m/m prior; Core PPI rose 0.2% m/m as expected vs. 0.0% m/m previously.
- Consumer price index In April: +0.4% m/m (+0.3% m/m expected) vs. +0.1% prior; +4.9% yoy as expected vs 5.0% yoy previously
- ISM Services PMI In April: 51.9 compared to 51.2 in March; price index raised from 0.1 to 59.6; The Employment Index fell to 50.8 from 51.3 previously
- ISM Manufacturing PMI In April: 47.1 compared to 46.3 in March: price index by 4.0 to 53.2; The Employment Index rose from 3.3 to 50.2
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Standard & Poor’s Global Manufacturing in the United States In April: 50.2 compared to 49.2 in March; “Input costs and output fees have increased
More severe rates during the month of April.“ - University of Michigan Consumer Opinion An improvement from 62.0 to 63.5 in April
Previous issues and the impact of the risk environment on the US dollar
April 28, 2023
Overlaying the US dollar against major foreign currencies: Forex for an hour Planned by TV
Event Results/Price Action: As expected, core PCE prices maintained their monthly growth of 0.3% in March. The annual reading came in at 4.6%, slower than February’s upwardly revised reading of 4.7% but higher than the expected reading of 4.5%.
Keep in mind that the Fed generally targets 2% based on a broader gauge but views the fundamental gauge as a better indicator of direction.
At the time, the quarterly labor cost index — another preferred measure by the Fed — beat estimates of 1.0% at 1.2% in the first quarter of 2023.
The US dollar, which had gained pips after the Bank of Japan’s earlier announcement and ahead of the Core Personal Consumption Expenditures (PCE) release, fell broadly on the prospect of the Fed raising interest rates despite the growing recession prospects.
The dollar also recovered its losses after the report in the first hour of release, although the issue of the US recession stuck and the currency capped the week at new intraday lows, with the exception of the yen.
Risk Environment and Internal Market Behaviors: The dollar has been seeing volatile price action all week, but Friday’s data underlined the risks of flat inflation and the Fed’s hawkish presence amid failing US data and rising recession risks in the US.
March 31, 2023
Overlaying the US dollar against major foreign currencies: Forex for an hour Planned by TV
Event Results/Price Action: Core PCE prices increased 0.3% m/m in February vs. estimates for a 0.4% increase and after a downward revision of 0.5% in January.
The Fed’s preferred annual reading came in at 4.6% – the slowest in 15 months – and fueled further speculation that rate hikes by the Fed are working and that the central bank can soon afford to pedal from the metal.
The US dollar fell to the daily opening prices and the support area of the Asian session in the news. The US dollar recovered its sudden losses during the trading session, and the currency ended the day on a mixed note against the major currencies.
Risk Environment and Internal Market Behaviors: Easing banking concerns and strong US data led traders to risk taking and pricing in the less hawkish Fed in the week leading up to Friday’s core PCE release.
The strong PCE reading kept the Dollar’s bearish tendencies during the week even though the currency saw some profit-taking near the end of the trading session and week.
Price action odds:
Possibilities of feeling risky:
The markets are generally in a “wait and see” mode at the moment as traders await concrete progress in the US debt ceiling negotiations.
Optimism for a deal gives the US dollar a slight edge among major assets, however, especially as traders also price in China’s post-lockdown growth that is likely to peak as well as weak PMIs from the UK and the Eurozone.
US dollar scenarios:
Possible base scenario:
Unless we see concrete updates on the US debt ceiling agreement, we could continue to see risk-takers stay on the sidelines while the US dollar makes slow and steady gains.
The core PCE report coming in as expected or slightly above estimates (as the leading indicators indicated above) could extend the current shallow uptrend for the US dollar after a (read: an hour or so) rumored buy, sell news scenario.
In the absence of external surprises on the downside to trigger a broader risk-averse trading environment, consider buying the US dollar against safe-haven currencies such as the Japanese yen and spot gold.
Possible alternative scenario 1:
If US policy makers look like they are ready to agree on a debt ceiling deal, we could see the downside risk to the dollar’s gains for the week.
It may not matter whether the core PCE price index comes in slightly lower or higher than market estimates. Traders can determine their appetite for risk and their confidence that the Fed probably You won’t stress too much anyway.
In the event of a risk-friendly trading environment during the release of the report, take a look at shorting the US dollar against the “riskier” bets such as the Australian dollar, the euro and the Canadian dollar.
Possible alternative scenario 2:
If the core PCE comes in much higher or lower than forecasts, this could prompt traders to focus more on the pro/anti-dollar trading frameworks rather than the intraday risk/risk off frameworks, barring any major developments on the US debt talks front.
In this scenario, a strong directional bias in the dollar may emerge, but remember that the movement may be limited in duration depending on the risk environment at the time of the release. If the US dollar is consolidating strongly before the release, look for consolidation breakout setups, especially against gold and the Japanese yen if the US dollar rallies after the event.
