The forex market is buzzing with anticipation as traders gear up for the release of the US Personal Consumption Expenditures PCE Price Index. This key inflation metric, preferred by the Federal Reserve, is expected to provide critical insights into future monetary policy moves. Let’s break down how this could impact key currency pairs.
EUR/USD Hovers Near 1.0700 Ahead of Key US PCE Price Index Data
EUR/USD is trading sideways near 1.0700 in the European session on Friday. The pair reverses the previous rebound amid resurgent US Dollar demand even as risk sentiment remains buoyant. Markets turn anxious ahead of the US PCE inflation data and Sunday’s French elections.
EURUSD 4-hour Chart
The US Bureau of Economic Analysis will release the PCE Price Index data for May later today. Investors are likely to react to the monthly core PCE Price Index print, which excludes volatile food and energy prices. A reading in line with expectations or higher (0.2% or more) could strengthen the USD, pushing the EUR/USD pair lower.
Despite potential headwinds for the USD from a lower-than-expected PCE reading, EUR/USD may struggle to stage a decisive rebound due to investor caution ahead of the French elections. Additionally, quarter-end flows and position adjustments could amplify market volatility and trigger irregular movements in major currency pairs.
GBP/USD Clings to Small Gains Near 1.2650, Awaits PCE Data
GBP/USD is holding onto modest recovery gains just above 1.2650 in the European session on Friday. Traders disregard the upward revision to the UK Q1 GDP data, refraining from placing any directional bets ahead of the key US PCE inflation data.
Earlier today, the UK’s Office for National Statistics reported an annualized GDP growth revision for Q1 to 0.3% from the previously announced 0.2%. This data failed to trigger a noticeable market reaction.
In the second half of the day, the US Bureau of Economic Analysis will release the PCE Price Index data. If the monthly core PCE rises 0.1% as forecasted, it could feed into expectations for a Fed rate cut in September, potentially hurting the USD. Conversely, a stronger reading (0.2% or more) may keep GBP/USD on the back foot.
Profit-taking and position adjustments on the last trading day of the second quarter could lead to sharp actions in currency pairs, distorting the impact of the PCE inflation data on financial assets.
Gold (XAU/USD) Could Witness Volatility After PCE Data Release
Gold (XAU/USD) is marginally higher, trading in the $2,330s on Friday, ahead of the US PCE Price Index release. The PCE is the Fed’s preferred inflation gauge, influencing their interest rate decisions.
Gold, being a non-interest-bearing asset, is sensitive to interest rate changes. Higher rates make gold less attractive, while lower rates increase its appeal. The upcoming PCE data could therefore be pivotal for XAU/USD.
USD/JPY Marks Fresh Multi-Decade Low Amid Market Anticipation
The Japanese Yen (JPY) hit a fresh multi-decade low on Friday, with traders largely ignoring Japanese Finance Minister Shun’ichi Suzuki’s “sense of urgency” comments. The US Dollar Index (DXY) is hovering around 106.00 ahead of the PCE inflation release.
Despite flatlining Durable Goods data and shrinking Pending Home Sales on Thursday, the market’s focus has shifted to the PCE numbers. The data’s outcome will likely set the tone for USD/JPY and broader forex market movements.
Conclusion
The release of the US PCE Price Index is poised to be a significant market mover, particularly for the EUR/USD, GBP/USD, XAU/USD, and USD/JPY pairs. Traders should be prepared for increased volatility and monitor both fundamental and technical indicators closely. Stay ahead of the curve and make informed decisions as this pivotal data unfolds.
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