Last week's PCE data reinforced expectations of a Fed rate cut. But the US dollar stabilized amid the Easter holiday and market anticipation ahead of the Nonfarm Payroll release.

The US Dollar stabilized in early trading this month (1/April), as trading was relatively quiet due to many exchanges being closed for Easter. The country released a sluggish Consumer Personal Expenditure (PCE) report at the end of last week, but the US Dollar Index (DXY) stabilized at around 104.50s.


The US Commerce Department reported that the PCE Price Index only grew 0.3% in February 2024, or lower than the consensus estimate of 0.4%. Meanwhile, the Core PCE Price Index, which is the main inflation reference for the Fed, slowed from 0.5% to 0.3% as expected.

Despite rising prices, detailed PCE data showed that consumer spending last month posted the fastest growth in a year. This indicates that the US economy remains resilient, while the pace of inflation continues to slow. In other words, the data supports expectations of a Fed rate cut starting in June.

CME FedWatch shows the market is now pricing in a 68.5% chance of a Fed rate cut starting June, up from around 60% before the data release. In addition, the market is still pricing in the prospect of three Fed rate cuts of 25 basis points each.

Market participants are now looking forward to the release of several other important data to be published by the United States in the next few days, especially Nonfarm Payroll on Friday. The provisional consensus expects the number to decline from 275k to 205k. A lower number risks further fueling market confidence in the prospect of an early or larger Fed rate cut.

Citi strategists told Reuters that the Fed is still on track to start cutting rates in June. They added, "If (economic) activity continues to run smoothly, the Fed may make three rate cuts this year. However, further weakness in the (US) labour market makes us expect five rate cuts this year."