TD Securities strategists note that a softer core United Kingdom (UK) Consumer Price Index (CPI) print triggered initial US Dollar (USD) weakness, but they still expect the broad USD uptrend to remain supported into next week’s Federal Open Market Committee (FOMC) meeting. The team highlights that more directional USD moves are likely once the Federal Reserve provides new guidance, keeping focus on policy communication rather than data alone.

USD uptrend expected to stay supported

"While the core CPI miss has led to knee-jerk USD weakness on the day, we expect the broad USD uptrend to stay supported into next week's FOMC. More directional USD breakouts will likely form on Fed's new guidance."

"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."

"All in, we expect today's CPI report to translate into firmer core PCE inflation at 0.27% m/m in May."

"On Thursday, PPI will grab focus which will give us a better estimate for core PCE for May, with our current estimate at 0.27% m/m. In addition to PPI, jobless claims will be in the morning and the 30y reopening will close out supply for the week."

"While there are signs suggesting tariff pass-through is fizzling out, and services ex-housing inflation cooled in the CPI, the outlook for consumer prices is not constructive in the near term as still-elevated energy prices will continue to pressure supply chains and goods inflation. For now, the path of least resistance for the Fed, amid improving labor-market conditions, is to shift to a more neutral policy posture which is what's broadly expected from the Committee at next week's FOMC meeting."

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