PCE US INFLATION REPORT FOR JANUARY

The Core PCE price index which is the Fed’s preferred inflation gauge is due to be released by 5:30PM GMT+4 today Friday 28th February 2025. Economists anticipate a 0.3% month-over-month increase, and a 2.6% year-over-year rise in January 2025, marking the lowest level in the past six months. This data point is expected to decline by 0.2% from the month of December after maintaining 2.8% for three consecutive months. Whereas from July to August 2024, the data point was steady at 2.7%.
            Basically, the Core Personal Consumption Expenditures (Core PCE) price index is a measure of the prices paid for goods and services by people in the United States excluding the more volatile food and energy, hence it is considered as the Fed’s preferred inflation gauge. Over the years, this data point remains relatively elevated above the Fed’s 2% inflation target. 

POTENTIAL EFFECT OF TODAY’S PCE INFLATION REPORT ON DOLLAR INDEX

In view of today’s reading, markets are slightly quieter while waiting for this major data release.
The dollar index (DXY) is somewhat steady around 107.34 with a 0.13% daily increase, maintaining gains from previous sessions. The recovery of the dollar could be largely attributed to uncertainties surrounding U.S. tariff policies and majorly President Trump’s shifting messages regarding tariffs on European goods and delays in planned tariffs for Canada and Mexico. The uncertainties around these, made investors sought the safe haven vis-à-vis the Dollar. If the data comes in higher than expected, analyst expects Dollar Index (U.S dollar’s value against a basket of six major currencies) to rally with potential target around 108.29, while a mixed data could drive the index down with potential target around 106.10

POTENTIAL EFFECT OF PCE INFLATION REPORT ON XAUUSD AND NASDAQ

The yellow metal has been pressured since Tuesday of this week after it made an all-time high of $2956.20 on Monday the 24th, the strength of the Dollar significantly contributed to the pressuring of the yellow metal alongside investors taking profit, uncertainties surrounding U.S tariffs and other fundamentals. As at the time of writing, the yellow metal trades at 2,864.30 denoting a 0.44% daily decline. In view of the upcoming release, a higher reading could drive prices lower with potential target around 2,791.25 and 2,713.33, whereas a mixed data could cause prices to rally as per technical analyst.
NASDAQ on the other end, also witnessed a significant decline to 20,467.46 cumulating to 0.30% daily decline, with potential support around 20,377.08 while waiting for the data points as per analyst.

POTENTIAL ACTION BY FOMC

The Fed’s Chair clearly stated that rates will remain on hold until greater confidence that inflation is slowing and have more clarity on economic policy. The summary of the Fed's latest meeting minutes highlights the FOMC's cautious approach, carefully evaluating economic indicators to balance growth and inflation concerns amid ongoing trade and fiscal policy uncertainties.
Conclusively, according to the FedWatch tool, market has priced in a 92.5% probability that interest rates will remain unchanged, while the remaining 7.5% anticipates a 25bps rate cut at the upcoming FOMC meeting on March 19.