Fed Frenzy: Core PCE to Decide Interest Rate Fate

The Federal Reserve's preferred inflation gauge, the Core PCE, is set to be released on Wednesday at 8:30 ET. Economists expect a 0.2% month-over-month (m/m) and 3.3% year-over-year (y/y) print, which would mark the 65th consecutive month of inflation above the FOMC's 2% target.

Last month, Core PCE rose 0.1% m/m (3.3% y/y), but despite softer-than-expected CPI and PPI readings since then, economists expect a similar reading this time around. The technical outlook for EUR/USD remains constructive with the recent tight consolidation taking place above the 200-day MA and rising trend line off the late July lows.

The market interpretation of the release is relatively straightforward: A 0.1% or 0.2% m/m reading would reduce the pressure on FOMC Chairman Kevin Warsh and Company to raise interest rates immediately, likely weighing on the US dollar and boosting risk assets like major stock indices. Conversely, a firm 0.3%+ reading, particularly alongside strong consumption, would strengthen the case for raising interest rates sooner rather than later, likely boosting the buck at the expense of risk assets.