US PCE Preview: March rate cut bets could pick up again US PCE Preview: March rate cut bets could pick up again US PCE Preview: March rate cut bets could pick up again

US PCE Preview: March rate cut bets could pick up again

Forex 4 minutes to read
Charu Chanana

Head of FX Strategy

Summary:  Market is seemingly focused on resilient growth in the US economy, and has pared March rate cut expectations for the Fed. While growth metrics remain mixed, focus will likely return to disinflation with core PCE this week pointing towards a move to 2% inflation by mid-2024. Soft core PCE below 0.2% MoM for December will likely increase the odds of a March rate cut again, pushing yields and dollar lower.

Market has now pared back expectations of a March rate cut to 40% after the pushback from Fed officials including Waller. Markets still remain convinced about a disinflationary trend being in place. However, after several months, the key question still is – whether the US economy will go into a recession?

Hard and soft data continues to be in divergence. Soft data coming from sentiment surveys, such as those from the regional Fed branches, have shown steep declines and send out recessionary warnings. The S&P Flash PMIs for January reiterated a rosy outlook for the US economy last night. Manufacturing PMI rose back into expansionary territory to 15month highs of 50.3 while services PMI accelerated to 52.9 from the prior 51.4.

But hard data, such as jobless claims, retail sales or NFP continue to hold up well. Q4 GDP due today may as well soften from Q3, but is likely to remain around 2% which does not corroborate with a recession. However, there are two things of note here:

  1. Hard data is usually more backward-looking compared to soft data, and takes longer to capture the turn in economic cycles due to lags to monetary policy
  2. Hard data has been subject to sharp downward revisions over the last year

In-line with the above trends, both GDP and PCE data due this week is likely to signal steady disinflation and a resilient economy.

Strong GDP growth is market’s base assumption, but if the actual print comes in above expectations, that could still boost the dollar. Annualized GDP is expected to cool to 2% in Q4 from 4.9% previously which was boosted by Swiftonomics. The DXY index could target the 103.80 level again if the actual print is above 2%, ahead of 50% fibo retracement at 104. A softer GDP growth may be seen by markets as an orderly slowdown of the economy, and is unlikely to spark sharp concerns of a slowdown. We believe dollar could be pushed lower but could remain supported at 50DMA at 102.96 in that scenario.

Core PCE however remains a bigger focus as it is the Fed’s preferred inflation measure. Fed expectations have somewhat been mis-aligned to the rapid disinflationary forces at play, given the upside surprise in CPI recently and a pushback to easing expectations from Fed officials. If rent inflation started to cool, inflation metrics could cool faster than expected and could again increase the odds of March rate cut. Core PCE for December is expected to come in at 0.2%, which will be the third consecutive month of a sub-0.25% print. This trend is associated with confidence about the YoY inflation returning to 2%, and could be a drag on yields and dollar. USDJPY could target this week’s lows of 146.66 while 1.0950 could be on target for EURUSD. Any upside surprise in core PCE, however, could be something that market is extremely sensitive to as this could serve as a further pushback to rate cut expectations, sending yields and dollar higher. Still, 150 and 1.08 could serve as levels to buy the dip in yen and euro respectively.


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

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