The upcoming release of the US Personal Consumption Expenditures (PCE) Price Index for May is drawing significant attention from both analysts and currency markets, with expectations for a notable acceleration in inflation. TD Securities strategists forecast that core PCE inflation will rise to 0.36% month-over-month (3.4% year-over-year), driven by robust services, while headline PCE is projected to increase by 0.49% month-over-month (4.1% year-over-year), largely due to higher energy prices. These figures are expected to surpass consensus estimates of 0.3% for core and 0.5% for headline PCE, respectively. The supercore measure is anticipated to climb 0.55% month-over-month following a strong Producer Price Index (PPI) reading for the month [1]. Source 2 corroborates these expectations, noting that the PCE Price Index is likely to show price pressures accelerating to a 4.1% yearly pace in May, the fastest growth in the last three years, up from 3.8% in April, with core inflation seen ticking up to 3.4% yearly rate from 3.3% in April [2].
TD Securities also expects personal spending to grow by 0.5% (consensus: 0.6%), reflecting a moderation in real terms to 0.0%, while personal income is projected to accelerate to 0.4% (consensus: 0.4%), remaining below spending growth [1]. The market's focus on Thursday will be on the PCE and spending data in the morning, as well as the 7-year Treasury auction to close out the week of supply. Additionally, speeches from Fed officials Bowman, Williams, and Goolsbee are scheduled, which could further influence market sentiment [1].
Currency markets are reacting ahead of the data release, with the British Pound (GBP) showing mild gains against the US Dollar (USD) as investors trim their USD long positions. The GBP/USD pair has rebounded from seven-month lows at 1.3140 but remains below 1.3200, practically flat on weekly charts. Over the past 10 days, the pair has dropped more than 1.6%, weighed down by unfavorable monetary policy divergence. Recent US economic data has bolstered confidence in the momentum of the US economy, prompting Federal Reserve officials to adopt more hawkish rhetoric, while Bank of England officials signal steady interest rates at least until well into 2027 [2].
Technical analysts at United Overseas Bank (UOB) see scope for further GBP depreciation to 1.3110 in the coming weeks, maintaining this view as long as GBP holds below 1.3245. The uncertain political scenario in the UK, including the resignation of Prime Minister Keir Starmer, has failed to provide sustained support for the Pound, with investors awaiting more clarity on the next PM's policies, particularly regarding government borrowing plans [2].
CONCLUSION
Both sources anticipate a strong acceleration in US PCE inflation for May, reinforcing expectations of persistent price pressures and supporting a hawkish stance from Federal Reserve officials. Currency markets are responding with cautious positioning, as the GBP/USD pair remains under pressure amid monetary policy divergence and UK political uncertainty. The upcoming PCE data release and Fed speeches are likely to be key drivers for market direction in the near term.