USD: Reading through the first quarter data tea leaves There has been much speculation this week over the outcome of tomorrow's release of the US March core PCE data. Remember this is the Fed'eral Reserve's preferred measure of inflation, and there is a strong consensus behind a 0.3% month-on-month reading. Such an outcome would again be too hot for the Fed's disinflation narrative and would keep expectations of the 2024 Fed easing cycle contained. Just 41bp of Fed easing is currently priced. But today's release of the full first quarter of 2024's core PCE deflator can provide clues for tomorrow's number. This data is released on a quarter-on-quarter annualised basis, and the consensus for today's reading is 3.4% (QoQ annualised). Assuming there are no revisions to the October-Februray data (we only find that out on Friday), analysts will today be looking at the first quarter data to extract the March reading. A 3.42% release for today's first quarter data would imply a 0.3% MoM release for tomorrow's March data, whereas a 3.40% figure would imply a 0.2% MoM release tomorrow. Equally, a 3.55% release would imply quite a bad 0.4% MoM figure and probably trigger more bearish flattening of the US yield curve and dollar strength. In short, today's first quarter core PCE deflator could be quite a market mover. We think the risks from this are pretty symmetric for the dollar. Long dollars is quite a crowded trade, and a fairly sharp sell-off in the dollar earlier this week on the back of the soft US PMI readings served as a reminder that long dollar positions are not bulletproof. Equally, however, signs of a 0.4% MoM reading tomorrow could see Fed easing expectations cut back to just 25bp and send DXY back to 106.50 – and perhaps 107.00. Such an outcome would probably send USD/JPY sharply higher again and heighten intervention risk – see more details on this below.