The release of the US Personal Consumption Expenditures (PCE) Price Index for May had a notable impact on currency markets, particularly the NZD/USD and USD/JPY pairs. According to the US Bureau of Economic Analysis, headline PCE inflation accelerated to 4.1% year-over-year in May from 3.8% in April, marking its highest annual reading since April 2023. Core PCE, which excludes food and energy, rose 3.4% year-over-year, up from 3.3% in April, with monthly core inflation holding steady at 0.3% [1][2]. These figures broadly matched market expectations [1][2].
Following the PCE data release, the US Dollar edged lower as traders scaled back expectations for a September Federal Reserve rate hike. The CME FedWatch Tool showed the probability of a rate increase falling to 60% from 67% before the inflation report [1]. The US Dollar Index (DXY) traded around 101.40, retreating from a more than one-year high near 101.80 reached on Wednesday [1].
In the FX market, NZD/USD paused a six-day losing streak and traded near seven-month lows at around 0.5650. Technical analysis indicated a bearish bias, with the pair holding below the 200-day and 100-day Simple Moving Averages (SMA) at 0.5827 and 0.5874, respectively. The Relative Strength Index (RSI) hovered around 29, signaling oversold conditions and suggesting the risk of a corrective bounce, while the Average Directional Index (ADX) above 30 pointed to strengthening downside momentum. Immediate resistance was noted at 0.5700 and 0.5770, with support at 0.5600 [1].
Meanwhile, USD/JPY traded within the historical intervention zone at 161.80, near multi-decade highs, as the Japanese Yen remained under pressure due to wide US-Japan yield differentials. Technical analysis showed a bullish bias, with the pair above the 20-period SMA at 161.66 and the 100-period SMA at 160.67. The RSI around 59 indicated positive momentum, with immediate resistance at 161.82 and 161.89, and support at 161.67 and 161.56 [2].
Additional US data released included Initial Jobless Claims, which fell to 215K for the week ending June 20, below expectations and down from the previous revised 227K. The final estimate of first-quarter US GDP showed an annualized growth rate of 2.1%, revised higher from 1.6% [2]. Looking ahead, traders are watching the upcoming Tokyo CPI release for June, which could influence expectations for Bank of Japan policy tightening and provide support for the Yen if the reading is stronger than expected [2].
CONCLUSION
The US PCE inflation data prompted a retreat in the US Dollar and reduced expectations for a September Fed rate hike, impacting both NZD/USD and USD/JPY pairs. NZD/USD remains under bearish pressure near seven-month lows, while USD/JPY holds near intervention levels with a bullish bias. Market participants are now focused on upcoming Japanese inflation data for further cues on Yen direction.