2 things that might offset the impact of the Core PCE release later today

Later in the North American session, traders and investors will focus on the Core PCE Price Index. This is the Fed’s favored measure of inflation, and it is forecast to increase by 0.4% m/m in May.

Inflation took the Fed by surprise. The Fed’s Chair, Jerome Powell, participated in a discussion yesterday at the ECB Forum in Sintra, Portugal.

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He said that the Fed still learns about inflation and how to deal with it. Truth be said, inflation reached more than four decades high in the United States, and there are no convincing signs that the trend will end anytime soon.

As such, the Fed is on a mission to hike rates as quickly as possible. It delivered a 75bp rate hike this month and will probably match it with another 75bp rate hike in July.

To the Fed’s help came the US dollar. The greenback strengthened in 2022, offsetting a bit the rise in the prices of goods and services.

But regardless of today’s data, traders should focus on two other events that will drive the price action for the rest of the week and at the start of the new one. More precisely, the end of the month flows and the upcoming Independence Day in the United States are more important for the price action in the short term than today’s inflation data.  

End of the month flows

June has been dominated by further strength in the US dollar. In particular, the USD/JPY moved in one direction only. Also, the EUR/USD trades close to 1.04, every day coming closer to parity.

End of the month flows bring increased volatility, especially during the main fixing times. As such, the inflation data will be followed by the most important fixing of the month, so the economic release might matter in the medium and long term, but not in the short term.

Independence Day

The 4^th of July is Independence Day in the United States. Because of that, the NFP or Non-Farm Payrolls release was not scheduled for tomorrow, the 1^st of July, as it should have been.

The reason is that many people take a long weekend to celebrate Independence Day. Therefore, the price action on Friday and Monday should be taken with a grain of salt.