US FX WRAP: Dollar weighed by soft headline PCE M/M print
Newsquawk Staff ·
USD was sold against peers following a softer-than-expected headline PCE M/M reading at 0.4% (exp. 0.5%). The report prompted a rally in Treasuries, leaving lower yields putting pressure on the dollar rally, seeing the DXY erase initial gains, trading lower to 101.44 from an earlier 101.746 high. That said, yearly headline and core printed above expectations, with Fed's Goolsbee continuing to stress that core inflation is still well too high, trending the wrong way, and with services inflation a little more disturbing. Other US data included Q1 GDP growth being revised up above expectations, personal income and spending topping forecasts, initial jobless claims falling W/W, continued claims rising W/W and durable goods declining, albeit not as much as expected.
G10 FX was largely in the green with strength led in CHF, GBP and CAD. AUD was helped by a stronger-than-expected May employment change reading, +40.3k (exp. 30.3k). The highest reading since December allowed the u/e rate to trickle down to 4.4% from 4.5%. Meanwhile, JPY was sluggish against USD, once again seeing sharp resistance at the 161.95 high made in 2024. USD/JPY session high matched the 161.95 level before retreating to 161.80
GBP/USD saw some relief from the June lows, trading around the 1.32 mark. Focus remains on the political landscape, and while briefings from the incoming Burnham’s team stick to the fiscal rules, the retention of Miliband as one of the three candidates for Chancellor is likely to cap further strength. BofA now expects the BoE to hold rates in 2026, with one 25bps cut to 3.5% in November 2027 (prev. saw two 2026 hikes and three 2027 cuts), as it slashes its inflation forecasts for 2026 & 27 as well as raising its growth outlook.
MXN was pretty unmoved on the latest Banxico confab, whereby they held rates at 6.50%, as expected, in a unanimous decision. Headline inflation forecasts were revised downwards for Q2 '26 due to lower levels of non-core inflation anticipated for that perio, although core inflation forecasts were adjusted slightly upwards between Q2-Q4 '26. Nonetheless, the Governing Board estimates that it will be appropriate to maintain the reference rate at its current level, and judges that the monetary policy stance is well-suited to face the challenges posed by the macroeconomic environment, including those associated with the international context.
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