Rich Asplund
5 min read
In This Article:
The dollar index (DXY00) Friday rose by +0.22%. Positive trade news is bullish for the dollar as the US moves closer to trade deals with China and other trading partners. The dollar also found support after the US May core PCE price index, the Fed's preferred gauge of underlying inflation, rose more than expected, a hawkish factor for Fed policy. In addition, an upward revision to the University of Michigan's US June consumer sentiment index is supportive of the dollar. The dollar raced to its high Friday afternoon when President Trump said he was ending all trade discussions with Canada and threatened new tariffs on the country after it moved to implement a digital services tax.
Gains in the dollar were limited from Friday's weaker-than-expected US May personal spending and income reports. Also, dovish comments from Minneapolis Fed President Kashkari weighed on the dollar when he said he sees two 25 bp Fed rate cuts this year.
US May personal spending unexpectedly fell -0.1% m/m, weaker than expectations of a +0.1% m/m increase. May personal income unexpectedly fell -0.5% m/m, weaker than expectations of +0.3% m/m and the biggest decline in more than 3-1/2 years.
The US May core PCE price index, the Fed's preferred gauge of underlying inflation, rose +0.2% m/m and +2.7% y/y, stronger than expectations of +0.1% m/m and +2.6% y/y.
The University of Michigan US Jun consumer sentiment index was revised upward by +0.2 to 60.7, stronger than expectations of no change at 60.5.
The University of Michigan US Jun 1-year inflation expectations were unexpectedly revised lower to 5.0%, weaker than expectations of an upward revision to 5.2%. The 5-10 year inflation expectations were revised downward to 4.0%, weaker than expectations of no change at 4.1%.
Minneapolis Fed President Kashkari said he sees two 25-bp Fed rate cuts this year, with the first potentially in September, but warned that tariffs could have a delayed impact on inflation and that policymakers should remain flexible.
US Commerce Secretary Lutnick said that the US and China had finalized a trade understanding reached last month in Geneva, including a commitment from China to deliver rare earth materials. China's Commerce Ministry also confirmed the agreement and stated that it will review and approve eligible applications for the export of controlled items, and the US will cancel the restrictive measures taken against China. In addition, Commerce Secretary Lutnick said the White House has imminent plans to reach agreements with a set of 10 major trading partners ahead of a July 9 deadline for reciprocal tariffs. Meanwhile, the Treasury Department announced a deal with G-7 countries that will exclude US companies from some taxes imposed by other countries in exchange for removing the "revenge tax" proposal from President Trump's tax bill.
