US Dollar: Choppy rates as markets digest PCE – TD Securities

TD Securities strategists note that United States (US) rates markets steepened after weaker headline Personal Consumption Expenditures (PCE) Price Index, while stronger personal income and spending data complicated the picture for the US Dollar (USD). With limited fresh drivers and upcoming U Mich confidence and Federal Reserve (Fed) speakers, they expect US rates to trade choppily as investors await further news from the Middle East.

Rates stay choppy after PCE data

"The curve steepened on Thursday with markets initially rallying on weaker than expected headline PCE. Personal income and spending also surprised above expectations. The Lisa Cook decision was not handed down by SCOTUS today, with the next opinions scheduled to be given on Monday."

"Core PCE accelerated to 0.32% m/m in May (3.4% y/y), with headline stronger due to energy at 0.45% (4.1% y/y). Despite the slight downside miss to our forecast for core PCE (TD: 0.36%, consensus: 0.3%), the story of the report was as expected."

"Market-based core PCE was a more subdued 0.24% m/m in May, which does signal that inflation is not necessarily running rampant — especially with a good portion of strength coming from financial services."

"Fed's Goolsbee pushed back on forward guidance and noted that inflation from services would make him more nervous than from goods or oil. Williams also provided remarks, seemingly not looking for hikes and pushing back cuts into 2027-2028."

"On Friday, U Mich confidence will be released in the morning, with Fed's Kashkari set to speak at the Aspen Ideas panel. Without much for drivers, rates could remain choppy here, waiting on news coming from the Middle East ahead of the weekend."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)