US Core PCE Inflation Preview: Federal Reserve preferred price gauge expected to slow in September

• The Core Personal Consumption Expenditures Price Index is forecast to rise 0.3% MoM and 3.7% YoY in September.
• The Federal Reserve’s Summary of Economic Projections pointed to one more rate hike in 2023.
• Markets could overlook PCE inflation data following Thursday’s GDP report. 

The Core Personal Consumption Expenditures (PCE) Price Index, the US Federal Reserve’s (Fed) preferred inflation gauge, will be released by the US Bureau of Economic Analysis (BEA) at 12:30 GMT.

What to expect in the Federal Reserve’s preferred PCE inflation report?

The Core Personal Consumption Expenditures (PCE) Price Index, which excludes food and energy, is forecast to rise 0.3% in September on month, at a stronger pace than the 0.1% increase recorded in August. The annual Core PCE Price Index is seen rising 3.7%, slowing from the 3.9% increase registered in August.

The headline PCE Price Index is expected to grow 0.3% MoM in September, while the annual PCE inflation is anticipated to edge lower to 3.4% from 3.5% in August.

The United States’ real Gross Domestic Product grew at an annualized rate of 4.9% in the third quarter, the BEA reported on Thursday. Details of the publication showed that the PCE inflation rose to 2.9% from 2.5% on a quarterly basis in Q3, while the Core PCE inflation declined to 2.4% from 3.7% in the second quarter.

While speaking before the Economic Club of New York in early October, Federal Reserve Chairman Jerome Powell said that the lower inflation readings in the summer were very favorable but noted that the September data was “somewhat less encouraging,” regarding the Consumer Price Index (CPI) figures.

When will be the PCE inflation report released and how could it affect EUR/USD?

The PCE inflation report is due at 12:30 GMT. Since markets already had a glimpse into the PCE figures in the third-quarter GDP report, the reaction is likely to remain muted.

Although the Fed's latest Summary of Projections, published in September, showed that policymakers saw it appropriate to raise the policy rate again before the end of the year, the CME Group FedWatch Tool shows that investors are pricing in a more than 70% probability that the Fed will hold the interest rate steady in 2023. The upcoming September PCE inflation report is unlikely to alter the market positioning in a significant way. Until the Fed’s December policy meeting, investors will have CPI inflation and employment data for October and November to confirm or deny whether the Fed’s tightening cycle has come to an end.  

FXStreet Analyst Eren Sengezer offers a brief technical outlook for EUR/USD and explains: “EUR/USD remains technically bearish in the near term, with the Relative Strength Index (RSI) indicator on the daily chart edging lower toward 40. Additionally, the pair closed below the 20-day Simple Moving Average (SMA) on Thursday after managing to hold above that level in the previous five trading days.” 

Eren also highlights the important technical levels for EUR/USD: “On the downside, 1.0500 (psychological level) aligns as immediate support before 1.0450 (2023 low set in March) and 1.0400 (psychological level, static level). In case the pair stabilizes above 1.0570 (20-day SMA), buyers could show interest in a technical recovery. In this scenario, 1.0650 (Fibonacci 23.6% retracement of the July-October downtrend, 50-day SMA) could be seen as the next resistance ahead of 1.0700 (psychological level, static level).