US Dollar: Uptrend seen intact into FOMC – TD Securities

Headline CPI Increase

0.5%

The month-over-month increase in the headline Consumer Price Index.

Core CPI Increase

0.2%

The month-over-month increase in the core Consumer Price Index, lower than the expected 0.3%.

Estimated Core PCE Inflation

0.27%

The expected month-over-month core Personal Consumption Expenditures inflation for May.

§ 01 Executive Snapshot

What: The US Dollar's uptrend is expected to remain intact ahead of the upcoming Federal Open Market Committee (FOMC) meeting.
Who: TD Securities strategists, Federal Reserve, UK Consumer Price Index (CPI) data.
Why it matters: The performance of the US Dollar is crucial for market dynamics and will be influenced by the Fed's upcoming policy guidance.

The core UK CPI print was softer than expected, leading to initial weakness in the US Dollar.
Consumer price inflation matched consensus expectations in May, with a headline increase of 0.5% month-over-month.
The core segment of CPI rose by 0.2% month-over-month, lower than the consensus estimate of 0.3%.

The US Dollar's uptrend is underpinned by expectations of a shift to a more neutral policy posture from the Federal Reserve, given improving labor market conditions.
The upcoming FOMC meeting is anticipated to provide new guidance that could lead to directional moves in the USD, emphasizing the importance of policy communication.

Immediate market implications include potential directional breakouts in the USD based on the Fed's new guidance.
Long-term implications could involve a sustained USD strength if inflation pressures continue, especially from elevated energy prices affecting supply chains.

Potential risk includes the possibility of further softening in core inflation data which could affect the Fed's policy direction.
Competition from other currencies could impact the USD’s strength, particularly if economic conditions shift unexpectedly in other regions.

Watch for the Producer Price Index (PPI) report on Thursday, which will provide further insights into core PCE inflation estimates for May.
The upcoming FOMC meeting and its policy statements will be critical in determining the USD's direction post-meeting.

§ 07

What is the expected trend for the US Dollar ahead of the FOMC meeting?

The US Dollar's uptrend is expected to remain intact ahead of the upcoming Federal Open Market Committee meeting.

Why is the performance of the US Dollar important?

The performance of the US Dollar is crucial for market dynamics and will be influenced by the Fed's upcoming policy guidance.

How might the FOMC meeting impact the US Dollar?

The upcoming FOMC meeting is anticipated to provide new guidance that could lead to directional moves in the USD.

What risks could affect the US Dollar's strength?

Potential risks include further softening in core inflation data and competition from other currencies if economic conditions shift unexpectedly.