TD Securities strategists note that a softer United States (US) core Consumer Price Index (CPI) print triggered only modest US Dollar (USD) weakness. They argue the broad USD uptrend remains in place, supported by strong payrolls and geopolitical tensions. They expect US Dollar Index (DXY) to hold near 99.86–100.00 into next week’s FOMC, where Chair Warsh’s guidance could drive the next USD breakout.

Dollar dip seen as temporary

"Consumer price inflation matched consensus expectations in May, with the headline posting another firm increase at 0.5% m/m (0.473% before rounding; TD: 0.48%, consensus: 0.5%) largely owing to the lingering impact from high crude prices (gasoline +7% m/m)."

"The core segment came in softer than expected, rising 0.2% m/m (0.208% before rounding; TD: 0.23%, consensus: 0.3%). As expected, the deceleration in the core was largely the result of normalization in OER/rents after a surge in April."

"The USD saw modest knee-jerk weakness as core CPI mom surprised to the downside vs consensus forecast. Nonetheless, the USD has already entered a broad-based uptrend, and the trend is unlikely to reverse on one modest core CPI miss."

"Last week's upside US payrolls surprise and escalating headlines for the US/Iran conflict are sufficient to keep the USD supported."

"Our baseline is for the DXY index to stay elevated around the 99.86-100.00 level into next week's FOMC, where we expect Chair Warsh's forward guidance to be a key driver of the next directional breakout for the USD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)