Traders are on alert for pivotal inflation data from both the region and the US, set for release later on Friday. The dollar and US Treasuries have steadied ahead of the Federal Reserve’s preferred price gauge, following a report indicating softer US economic growth, with spending and inflation both revised downward. Markets expect the core Personal Consumption Expenditures (PCE) measure to ease slightly in April. Any shortfall in this expectation could modestly weigh on the US dollar.
Currently, markets are pricing in about a 50% chance that the Fed will hold rates in September, with the probability of a November rate cut standing at around 64%. Hawkish Fed expectations have boosted demand for the US dollar, pushing Treasury bond yields to multi-week highs. However, a downward revision of the annualized first-quarter US GDP data to 1.3% from the initial 1.6%, along with a modest rise in Initial Jobless Claims, has acted as a headwind, triggering a sell-off in both the Greenback and Treasury yields.
A surprise uptick in the core PCE figure would reinforce expectations for delayed and less aggressive Fed rate cuts, potentially extending the dollar’s decline while impacting gold prices negatively. Conversely, if the data show unexpected softness in core PCE inflation, it could bolster gold prices by increasing bets for a September Fed rate cut.