CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
For institutions
Log in Open account
3_dollarM

US PCE Preview: Key to Fed’s Rate Cuts

Macro 4 minutes to read
Charu Chanana
Charu Chanana

Chief Investment Strategist

Key points:

  • The US June PCE release will be pivotal for the Fed to determine if disinflationary trends continued throughout Q2.
  • A lower-than-expected PCE reading could bolster hopes for a September rate cut, potentially weakening the US dollar and supporting equities unless demand concerns arise. Conversely, a higher PCE print could diminish the likelihood of a rate cut, strengthening the US dollar and pressuring stocks.
  • USDJPY remains the most susceptible as markets assess the Fed’s rate cut prospects and BOJ is expected to hike rates next week.

 

US economic data continues to be a significant driver of market movements, with investors closely analyzing these releases to gauge the Federal Reserve's potential actions.

Later today, at 12:30 GMT, the Fed's preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, will be released. Market participants are particularly focused on this report as it will influence expectations for Fed rate cuts.

 

The Context

The market expects the following for the PCE data:

  • Headline PCE: 2.4% YoY (from 2.6% prev) and 0.1% MoM (from 0.0% prev)
  • Core PCE: 2.5% YoY (from 2.6% prev) and 0.2% MoM (from 0.1% prev)

This suggests that the market is positioned for a slight pickup in June PCE from the very low May numbers, but still come in below the monthly gains of 0.3% seen in February, March and April.

However, yesterday’s advance Q2 GDP data revealed that the core PCE price index increased at a 2.9% annualized rate for Q2, exceeding expectations of 2.7%. This may push the June print higher, or lead to upwards revisions for April or May. This would cast doubt on a September rate cut, which markets have largely priced in.

26_FX_PCE

Potential Market Reactions

  • Lower PCE Print: If core PCE comes in below 0.3% MoM, it could bolster expectations for a rate cut in September. This scenario might weaken the US dollar and support equities. Anything below 0.1% before rounding could also increase the odds of a rate cut as early as next week, given recent narrative of an economic slowdown and equity market correction. This could weaken the US dollar, but equity markets could become gripped with recession concerns and potentially see further downside pressures.

     

  • Higher PCE Print: Conversely, an unexpected increase in the PCE figures, with core PCE at or above 0.3% MoM, could diminish the likelihood of a September rate cut. This would likely lead to a stronger US dollar and could exert downward pressure on stock markets.

 

Fed still needs more of the same inflation data

The Federal Reserve has indicated a cautious approach, preferring to wait for more consistent inflation data before making substantial policy shifts. Even with softer inflation readings, the Fed might only signal a potential rate cut in September without fully committing to it unless there is a notable downturn in economic conditions.

 

Japanese Yen remains on edge

The US dollar has seen fluctuations in recent weeks, especially against currencies like the Japanese yen, however its downside has remained relatively well contained despite a sharp surge in the yen this week. This is because of the high yield of the US dollar as well as the US election risks.

The Japanese yen remains the most at risk with the release of June PCE today.

A lower-than-expected PCE reading could push the dollar lower against the yen, with USDJPY likely moving lower to test 152 once again.

Conversely, a higher print could spur a dollar rally, potentially reversing yen’s gains and pushing USDJPY back above its 100-day moving average at 155.50.

 



Recent FX articles and podcasts:

    Recent Macro articles and podcasts:

    Weekly FX Chartbooks:

     

    FX 101 Series:


    This content is marketing material. 
    None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice or a recommendation.

    Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

    Saxo partners with companies that provide compensation for promotional activities conducted on its platform. Some partners also pay retrocessions contingent on clients investing in products from those partners.

    While Saxo receives compensation from these partnerships, all educational and research content remains focused on providing information to clients.

    Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

    Please refer to our full disclaimer and notification on non-independent investment research for more details.

    Saxo Bank A/S (Headquarters)
    Philip Heymans Alle 15
    2900 Hellerup
    Denmark

    Contact Saxo

    International
    International
    Pricing
    Account types
    About Saxo
    Legal

    All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

    Saxo is part of the J. Safra Sarasin Group.

    Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

    Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.