Dollar Stays Weak as Traders Weigh Hawkish PCE and Dovish Spending Signals – Action Forex
Dollar enters the US session mixed, as markets digest a batch of data offering signals to both sides of the policy debate. The greenback is seeing additional selling against Euro and Swiss Franc, but recovering modestly against commodity-linked currencies.
Core PCE inflation rose faster than expected in May, providing Fed hawks with further justification for holding off on rate cuts in the near term. But disappointing personal income and spending data, both of which declined on the month, bolster the case for rate reductions later in the year, particularly after tariff uncertainty resolves. With US futures holding firm, markets appear more inclined to focus on the soft demand data as a rationale for easier policy ahead.
On the trade front, China’s Ministry of Commerce confirmed a new framework agreement with the US aimed at easing tensions over tech restrictions and rare earth exports. The framework outlines mutual concessions: China will expedite export approvals under its control regime, while the US is set to roll back a swath of existing curbs. The announcement aligns with comments from US President Donald Trump on Thursday referencing a recently signed deal with Beijing, later clarified by White House officials as an implementation mechanism for the Geneva agreement.
Looking across currencies, Dollar still ranks at the bottom for the week, just ahead of the Canadian Dollar, which failed to gain traction after April and May GDP prints both surprised on the downside. Yen also underperforms, weighed by a sharper-than-expected drop in Tokyo’s inflation. Meanwhile, Swiss Franc tops the leaderboard, with Euro and Sterling also buoyant. Aussie and Kiwi are sitting in the middle of the pack, underperforming relative to the risk-on rally in equities this week.
In Europe, at the time of writing FTSE is up 0.48%. DAX is up 0.72%. CAC is up 1.30%. UK 10-year yield is up 4.483 at 0.006. Germany 10-year yield is up 0.01 at 2.580. Earlier in Asia, Nikkei rose 1.43%. Hong Kong HSI fell -0.17%. China Shanghai SSE fell -0.70%. Singapore Strait Times rose 0.70%. Japan 10-year JGB yield rose 0.012 to 1.436.
US Core PCE surprises to upside at 2.7% in May, but income and spending disappoint
US core PCE inflation accelerated to 2.7% yoy in May, above expectations of 2.6% yoy and up from an upwardly revised 2.6% yoy in April. The Headline PCE index also edged higher from 2.2% yoy to 2.3% yoy as expected. While the inflation print highlights persistent price pressures—particularly in core categories—consumption data painted a weaker picture.
Personal income unexpectedly dropped -0.4% mom, a steep miss versus forecasts for a 0.2% gain. Personal spending fell -0.1% mom against an expected 0.2% mom increase. The fall in spending was driven by a notable USD 49.2B pullback in goods purchases, only partially offset by a USD 19.9B rise in services spending.
Canada’s GDP contracts -0.1% mom in April, early data points to May decline
Canada’s GDP shrank by -0.1% mom in April, missing expectations of a flat print. Weakness was concentrated in goods-producing sectors, which fell -0.6% mom. Services sector offered a mild offset with a 0.1% mom gain. Just 10 of 20 industrial sectors posted growth, suggesting a broad-based soft patch.
Looking ahead, preliminary data indicates another -0.1% mom decline in real GDP for May. Mining, oil and gas extraction, public administration, and retail trade all weighed on activity, with only real estate and rental leasing providing a meaningful offset.
Eurozone economic sentiment falls to 94 in June as industry weakens
June’s economic data from the European Commission showed further erosion in business sentiment, with Economic Sentiment Indicator falling to 94.0 in both the EU and the Eurozone.
France (-3.4) posted the sharpest decline in sentiment among major EU members, followed by Spain (-1.4) and Germany (-0.8), while Poland (+1.0) saw a slight rebound.
The decline was led by deteriorating industry confidence, with retail also contributing. Confidence in services and among consumers held firm, while construction recovered.
Employment expectations, however, remained stable, with the EEI unchanged in the EU (97.5) and marginally higher in the Eurozone (97.1).
Tokyo core inflation slows to 3.1% in June, but food costs still surging
Tokyo’s core CPI (ex-fresh food) slowed more than expected in June, coming in at 3.1% yoy versus 3.6% yoy in May and below forecasts of 3.4% yoy. The decline was largely driven by the resumption of fuel subsidies and temporary reductions in utility charges. Core-core CPI, which strips out both fresh food and energy, also eased to 3.1% yoy from 3.3% yoy.
However, the figure masks ongoing strain on household budgets. Food prices (excluding volatile items) rose a sharp 7.2% yoy, accelerating from May’s 6.9% yoy. Tokyo consumers paid nearly 90% more for rice and faced eye-watering increases in chocolate and coffee costs. Service prices edged down slightly but remained elevated at 2.1%.
On the labor side, Japan’s May jobless rate held steady at 2.5%, while the job-to-applicant ratio slipped slightly to 1.24.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 0.7970; (P) 0.8012; (R1) 0.8044; More….
USD/CHF’s decline is in progress and intraday bias stays on the downside. Current down trend should target 61.8% projection of 0.9200 to 0.8038 from 0.8475 at 0.7757 next. On the upside, above 0.8017 minor resistance will turn intraday bias neutral and bring consolidations. But recovery should be limited below 0.8214 resistance to bring another fall.
In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8475 resistance holds.
