US core PCE inflation set to soften further, paving way for another Federal Reserve interest-rate cut

• The core Personal Consumption Expenditures Price Index is expected to rise 0.3% MoM and 2.6% YoY in September.
• Markets expect the Fed to lower the policy rate by 25 basis points at the next policy meeting.
• Already released quarterly PCE inflation data could diminish the impact of the monthly prints.

The United States Bureau of Economic Analysis (BEA) is set to release the Personal Consumption Expenditures (PCE) Price Index data for September, which is the Federal Reserve’s preferred measure of inflation, at 12:30 GMT.

Although PCE inflation data is usually seen as a big market-mover, this time its impact could be limited due to the fact that quarterly PCE inflation figures were already released within the Gross Domestic Product (GDP) report on Wednesday.

Anticipating the PCE: Insights into the Federal Reserve's key inflation metric

The core PCE Price Index, which excludes volatile food and energy prices, is projected to rise 0.3% in August on month, at a stronger pace than the 0.1% increase recorded in August. Over the last twelve months, the core PCE inflation is expected to edge lower to 2.6% from 2.7%. Meanwhile, the headline annual PCE inflation is seen retreating to 2.1% from 2.2% in the same period. 

On Wednesday, the BEA reported that the PCE Price Index and the core PCE Price Index rose 1.5% and 2.2%, respectively, on a quarterly basis in the third quarter.

Previewing the PCE inflation report, “core PCE is projected to rise 0.3% m/m and print at 2.6% y/y vs. 2.7% in August,” BBH analysts expect, adding that“risks are skewed to the upside because CPI inflation in September ran hot.”

The CME Group FedWatch Tool shows that markets have already fully priced in a 25 basis points (bps) rate cut in November. At the last policy meeting of the year, the probability of another 25 bps rate reduction stands at around 70%, against a 30% chance of a no change in the policy rate. The PCE Price Index figures are unlikely to alter these odds in a noticeable way. 

How will the Personal Consumption Expenditures Price Index affect EUR/USD?

Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief technical outlook for EUR/USD:

“The Relative Strength Index (RSI) indicator on the daily chart remains below 50 even though EUR/USD closed the previous three days modestly higher, highlighting a lack of bullish momentum.”

“On the upside, the 200-day Simple Moving Average (SMA) aligns as a pivot level at 1.0870. In case EUR/USD rises above this level and starts using it as support, technical buyers could take action. In this scenario, 1.0940 (100-day SMA) could be seen as next resistance before 1.1000-1.1010 (round level, 50-day SMA). On the downside, 1.0800 (round level) aligns as first support ahead of 1.0670 (static level from June).”