Rate watches turn attention to US PCE data as Fed rate cut hopes rise

The latest update of the Fed’s chosen inflation gauge will be released on Friday, 20th of February, 2026.

Annual Core PCE Index forecast to edge higher

Forecasters predict that the delayed PCE inflation data for December will reveal sticky price pressures. Headline annual PCE growth is forecast to remain steady at an above target 2.8%. Meanwhile, the more important core PCE figure is predicted to rise to 2.9%, pushed higher by a forecast monthly increase of 0.3%.

(Source: Trading Economics)

The data adds further weight to the argument US inflation has reanchored above target. The figures stand in contrast to last week’s CPI figures, which appeared to show moderating price pressures. That data showed a larger than expected drop in headline CPI to 2.4%. More reassuringly, core CPI dropped, as expected, to a nearly five year low of 2.5%.

Hopes of falling inflation raise odds of Fed rate cuts

Signs of moderating inflation, along with some weakness in US household activity at the back end of 2025, has lifted the odds of deeper rate cuts from the Fed. The dovish pricing has also been supported by the nomination of Kevin Warsh by the Trump administration, who has advocated for lower interest rates.

Currently, the markets are discounting two cuts from the central bank in the year ahead. The first move is fully baked-in for July. But a roughly 75% chance of a cut is priced-in for the June meeting – the first meeting as Warsh as Chairperson, assuming a smooth confirmation process. The markets are increasingly flirting with the idea that the Fed will deliver three cuts in 2026. Roughly 60 points of cuts are baked into the curve going into the PCE data, implying a 40% chance of three cuts from the Fed in 2026.

The PCE data could swing this pricing at the margins. A softer release that sees core inflation at 2.8% or below could see the odds of three cuts and a cut in June jump materially. A spicier number may lift the curve, deferring the timing of the first cut and lowering the implied probabilities of three this year.

(Source: CME Group, Capital.com)

USD slides on rate cut expectations and “Sell America” trade

The US Dollar has slid this year as rate cut expectations have climbed and erratic US foreign and trade policy reignited the so-called “Sell America” trade.  The EUR/USD remains in a primary uptrend, albeit one marked, judging by the daily RSI and price falling below the 20-day moving average, by slowing momentum. A hotter than expected inflation print could weigh on the EUR/USD, with a larger than expected drop a possible catalyst for further upside. Short-term resistance appears to be about 1.1930 for the pair, while support looks to be at 1.1767.

(Source: Trading View)
(Past performance is not a reliable indicator of future results)