TD Securities analysts highlight that a significant weakness in the UK’s Consumer Price Index (CPI) led to initial weakness in the US dollar (USD). However, they anticipate that the dollar’s overall upward trend will persist, particularly leading up to the upcoming Federal Open Market Committee (FOMC) meeting. They stress that any new guidance from the Federal Reserve could result in the dollar taking a more definitive direction, emphasizing policy communication over mere data.
USD uptrend expected to remain supported
“The core CPI’s underperformance caused a noticeable drop in the USD, but we predict that the overall uptrend for the dollar will continue ahead of next week’s FOMC. A clear breakout for the USD may result from the Fed’s new insights.”
“The inflation rate aligns with expected figures for May, showing a strong headline increase of 0.5% compared to the prior month (0.473% before rounding, TD: 0.48%, consensus: 0.5%). High crude oil prices (up 7% month-over-month) contributed to this, causing the core segment to rise by 0.2% (0.208% month-over-month). The anticipated slowing in the core rate is largely due to the normalization of OER/rent following an increase in April.”
“Together, today’s CPI report suggests that the core PCE inflation for May is likely to remain solid at 0.27% month-over-month.”
“The focus will shift to the Producer Price Index (PPI) this Thursday, which should provide a more optimistic forecast for the May core PCE, currently estimated at 0.27% month-over-month. In addition to the PPI, unemployment claims will also be released in the morning, and the reopening of 30-year bonds will conclude this week’s supply.”
“There are indications that tariff impacts are becoming more significant, and the inflation in non-housing services appears to be cooling according to the CPI. However, the near-term outlook for consumer prices remains concerning as rising energy costs keep pressuring supply chains and goods inflation. At this moment, with improvements in the labor market, the Fed’s least resistant path seems to be shifting toward a more neutral policy stance, which is broadly anticipated at next week’s FOMC meeting.”
