Core PCE Report to Test USD/JPY Volatility and Rate Expectations

The US dollar's influence on global markets is being closely watched ahead of tomorrow's Core PCE report, which could impact rate expectations and volatility in the currency market.

Core PCE, considered a preferred inflation gauge by the Fed, has been rising to 3.4% this year, driven by higher energy prices. A soft print would likely diminish expectations for rate hikes, potentially leading to USD weakness.

The massive USD/JPY carry trade has fueled larger USD flows, putting pressure on pairs like EUR/USD and GBP/USD. If the Core PCE report surprises to the downside, it could trigger a knee-jerk reaction in USD/JPY, with support at 158.58, 157.78-158.09, and 157.30.

Gold remains attractive as an asset class, given its resilience despite rising inflation expectations. With Core PCE expected to match last month's 3.3% print, a strong inflation reading could lead to a pullback in gold prices, offering a buying opportunity at current levels.