US PCE inflation holds at 4.1% in May, easing fears of July rate hike
US core PCE inflation held at 4.1% in May, matching expectations and easing fears that the Fed would need to hike rates as soon as July, with the dollar slipping on the relief.
US core PCE inflation held steady at 4.1% year-on-year in May, matching expectations and providing some relief to markets that had feared a hotter reading could force the Federal Reserve to hike interest rates as soon as July.
The Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, came in exactly as forecast, with headline inflation also printing a four-handle. The data helped calm nerves after recent upside surprises had raised the specter of further tightening. The dollar slipped on the release, as traders pared back bets on an imminent rate increase. WTI crude oil continued its decline, falling another 52 cents to $69.82, reflecting the broader reversal in commodity prices that has helped contain inflation expectations.
For currency traders, the steady PCE reading reduces the immediate risk of a hawkish Fed surprise, which had been supporting the dollar. With the Fed now likely to hold rates steady at its July meeting, the focus shifts to the interest rate differential between the US and other major economies. The euro and yen could gain ground if the dollar's yield advantage narrows. Live FX prices and charts on NowPrice show how the market is reacting to the data in real time.
Looking ahead, traders will watch for any commentary from Fed officials in the coming days, as well as the June employment report for further clues on the labor market's trajectory. If inflation continues to level off, the case for a rate cut later this year could strengthen, potentially weighing further on the dollar. However, any renewed upside in energy prices or wages could reignite rate hike speculation.