The core PCE inflation in the US stayed steady at 2.8% in June, matching last month’s rate. This is higher than what analysts expected, which was 2.7%. The overall PCE Price Index rose to 2.6% in June, up from a revised 2.4% in May. This increase was greater than the predicted 2.5%.

Month On Month Data

Both the PCE Price Index and its core version went up by 0.3% from the previous month. Personal Income and Spending also grew by 0.3% in June. After the data came out, the US Dollar Index remained stable, trading around 99.90. The US dollar showed strength against the euro but fluctuated against other major currencies. Knowing inflation metrics like PCE and CPI is essential for economic analysis. Inflation affects a currency’s value. Generally, higher inflation leads central banks to raise interest rates, which can strengthen the currency by attracting more investment. On the other hand, inflation impacts gold prices by influencing interest rates. High rates can make gold less attractive compared to assets that earn interest, while lower rates can boost its appeal.

Fed Policy And Market Impact

With June’s inflation data in hand, it’s likely the Federal Reserve will continue its “higher for longer” approach to interest rates. The core PCE staying at 2.8% makes a rate cut unlikely in the near future. According to the CME FedWatch Tool, the market has mostly eliminated the chance of a rate cut at the September 2025 meeting, with the likelihood of holding rates climbing to over 90%. This supports our belief that the US dollar will remain strong, particularly against currencies from central banks that are less aggressive. Recent manufacturing PMI data from Germany showed a contraction at 48.5 earlier this month, indicating that the European Central Bank may need to consider easing its policies sooner than the Fed. We see potential in buying call options on the US dollar or put options on the EUR/USD pair to take advantage of this difference. The outlook for gold isn’t as bright since it doesn’t yield returns. With the 10-year Treasury yield holding steady above 4.1% after this report, the cost of holding gold has risen. We observed a similar trend in late 2023 when ongoing inflation kept rates high, putting pressure on gold prices. This situation creates uncertainty for equity indexes, which could lead to volatility in the coming weeks. While strong consumer spending is good for corporate earnings, the expectation of continued high interest rates could hinder company valuations. The CBOE Volatility Index, or VIX, has been around a low of 14, indicating that the market might be underestimating the risk of a significant change following the next major economic data release. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now