U.S. May Consumer Prices for May (released today) were lower than forecast and lower than the prior period in all categories. Month-over-month prices were unchanged (0%) for the first time since July 2022. For reference, the last time MoM CPI turned negative was in April 2020 at the beginning of the COVID outbreak. Core MoM was +0.2% (+0.3% est.), YoY was+ 3.3% (+3.4% est.), and Core YoY was +3.4% (+3.5% est). In all, today’s lower inflation data broke some new ground. It wasn’t by much but enough to call it a win for the Fed and raise expectations for FOMC cuts this year.
The DXY’s 3-day rally ended with today’s dollar sharp selloff. The dollar index is -0.82% to trade at 104.36, approaching the 200-day moving average support at 104.29.
The dollar is lower vs. all G10 and most majors. G10 losses span -0.53% vs. CAD to -1.86% vs. SEK. Key losses include a 0.95% drop vs. EUR and 0.86% drop vs. GBP. The one bright spot for the dollar is a 1.74% gain vs. the Mexican peso. The peso is down a stunning 11.37% against the dollar in June in the wake of the general election which gave the Morena party a near supermajority, sparking investor concerns over eroding judicial branch independence and constitutional changes.
U.S. Treasury yields are lower today following the favorable CPI data. Yields are lower in most tenors but concentrated on the near end of the curve: 2yr-1yr -0.15%.
Today the FOMC announces its rate policy decision at 2pm ET, no change is expected.
