The dollar index (DXY00) today is up +0.47%. The dollar is seeing support as the 10-year T-note rose +3.6 bp and the 30-year T-bond yield rose back above 5% for the first time in 1.5 months. The rise in Treasury yields supported the dollar’s interest rate differentials.
Today’s US CPI report generated some favorable initial media coverage as the June core CPI report of +0.2% m/m was slightly below expectations of +0.3%. However, there were some scattered signs of upside pressure from tariffs, and that pressure is expected to increase in the coming months. Also, both the headline and core CPI reports on a year-over-year basis rose from May.
Specifically, the June US CPI rose +0.3% m/m, which was in line with market expectations, while the year-over-year figure of +2.7% was slightly worse than expectations of +2.6% and was up from May’s +2.4%. The June US core CPI rose +0.2% m/m, which was slightly better than expectations of +0.3%. On a year-over-year basis, the June US core CPI was in line with expectations at +2.9% y/y but rose from May’s +2.8%.
Today’s CPI report did not improve market expectations for Fed easing, which were little changed after the CPI report. Federal funds futures prices are discounting the chances for a -25 bp rate cut at 3% at the July 29-30 FOMC meeting and at 65% at the following meeting on Sep 16-17.
There was some positive trade news today after Treasury Secretary Bessent said that US-China trade talks are in a “very good place,” which reduced safe-haven demand for the dollar. He also said the US-China deadline is flexible and told market participants “not to worry about August 12.” Mr. Bessent confirmed that the Trump administration has told Nvidia that a license for the sale of its advanced H20 GPU chips to Chinese firms will be granted and is “all part of a mosaic” in the US-China negotiations. He also said he hopes to meet with Chinese Vice Premier He Lifeng in August.
EUR/USD (^EURUSD) is down -0.36% on strength in the dollar. The euro was also undercut by today’s -2.4 bp decline in the 10-year bund yield, which reduced the euro’s interest rate differentials.
The euro saw underlying support from news that the July German ZEW expectations index rose +5.2 points to 52.7 from 47.5 in June, which was stronger than expectations for an increase to 50.4.