Original author: Vladimir Zernov
Original article published on FX Empire: “U.S. Dollar Pulls Back As Traders React To PCE Price Index Report – Analysis for EUR/USD, GBP/USD, USD/CAD, USD/JPY”
Rewritten and Expanded Article:
U.S. Dollar Retreats Following Release of PCE Price Index Data
The U.S. currency faced downside pressure on Friday following the release of the latest Personal Consumption Expenditures (PCE) Price Index report. This gauge, closely monitored by the Federal Reserve, showed inflation in line with expectations, prompting investors to reconsider the timing and likelihood of interest rate changes from the Fed.
During the session, the U.S. Dollar Index, which tracks the greenback against a basket of major currencies, pulled back from recent highs, reflecting a tone of caution in currency markets. Let’s explore how the dollar’s reaction impacted major currency pairs, including EUR/USD, GBP/USD, USD/JPY, and USD/CAD.
Key Takeaways From the PCE Report:
– The headline PCE Price Index rose 2.7% year-over-year in April
– Core PCE, excluding volatile food and energy prices, also increased 2.8% year-over-year
– Both figures matched analyst expectations, suggesting no surprises in inflation momentum
– Month-over-month, PCE prices were flat, while core PCE rose 0.2%
These results signal that while inflation remains above the Fed’s 2% target, it is no longer accelerating at an alarming pace. Steady inflation figures provided little reason for the Fed to significantly shift its current monetary policy stance.
U.S. Dollar Index Reacts
The U.S. Dollar Index (DXY) declined from intraday highs near 105.00 to levels around 104.60 after the release. Investors interpreted the inflation report as neutral, reducing odds of a hawkish Fed response in the near term. Declining Treasury yields and an overall cooling in market optimism over interest rate hikes made the dollar less attractive.
Market participants are now focused on upcoming economic releases and Fed communications for hints on potential shifts in the interest rate path.
EUR/USD Rises as Euro Gains Ground
EUR/USD benefitted from dollar weakness on the back of the PCE data, with the pair pushing above the 1.0850 resistance level.
Factors supporting the euro’s gains included:
– Stabilization in the European economy, particularly German retail sales and inflation data, which showed improving consumer behavior and moderating price pressures
– Growing belief among investors that the European Central Bank (ECB) may begin its rate-cutting cycle ahead of the Fed, but do so cautiously
Technical analysis shows that EUR/USD is currently forming upward momentum. Should buying pressure persist, the next major resistance level lies near 1.0900. On the flip side, any risk-driven selloffs or renewed strength in the U.S. dollar could bring the pair back towards the 1.0800 level.
Outlook for EUR/USD:
– Bullish scenario: Break above 1.0900 could lead to a move toward the 1.0950–1.1000 range
– Bearish scenario: Failure to maintain gains above 1.0850 could trigger a pullback to 1.0780 support
GBP/USD Presses Higher, Finding Strength Above 1.2750
The British pound extended its rally against the U.S. dollar, breaching the 1.2750 mark after a muted reaction to the PCE data. The pair was bolstered by favorable domestic conditions and a general improvement in risk appetite.
U.K. economic fundamentals offered marginal support:
– Improving real wage growth amid falling inflation, which may reduce pressure on the Bank of England to raise rates further
– Markets have priced in a cautious stance from the BoE, opening the door for pound resilience in a stable interest rate environment
From a technical perspective, GBP/USD continues to test resistance near the
Explore this further here: USD/JPY trading.