Final PCE reading in 2023 could weigh on rate policy outlook

The PCE inflation data, in the United States, on Friday is expected to be the final key piece of data for the year, and an upside surprise is required to give the Fed’s push-back attempts more credibility.

If an upside surprise does not materialize, it will be difficult for the Fed to thwart expectations of a March rate cut, which could reinforce the US dollar selling momentum.

Markets expect the core figure to decline to 3.3% YoY and the headline figure to 2.8%, potentially fueling volatility in swap markets and investor bets on the next Fed’s decision.

The core PCE index for November, the Fed’s favorite inflation gauge, is expected to be the highlight next week. In the forex market, the US Dollar is showing a bullish trend, gaining against major currencies, including a noticeable drop in the Sterling following UK’s latest inflation data.

Traders are now bracing for the release of the PCE Price Index, the Federal Reserve’s favored gauge of inflation, which could be a game-changer for the dollar, especially with the Fed pushing back against the notion of swift rate cuts next year.