US 10-year inflation expectations refresh one-week low

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, fades the week-start rebound while extending the pullback from a 10-week high to 2.55% by the end of Tuesday’s North American trading session.

In doing so, the inflation precursor declined to the lowest levels in over a week even as the US data printed the firmer outcomes the previous day. That said, the Conference Board’s (CB) latest survey details. Also, US Housing Price Index (HPI) rose by 0.1% MoM in June compared to May's increase of 1.3% and market expectation of 1.1%. Further, the S&P/Case-Shiller Home Price Indices eased to 18.6% YoY during the stated month versus 19.5% forecast and 20.5% previous readings. It should be noted that the US JOLTS Job Openings grew to 11.239M in July versus 10.475M expected and 11.04M prior (revised from 10.698M).

It should be noted that the softer inflation expectations failed to push back hawkish Fedspeak as Richmond Federal Reserve Bank President Thomas Barkin said, "I don't expect inflation to come down predictably." On the same line was Atlanta Fed President Raphael Bostic who said, “Slowing inflation data 'may give us reason' to slow interest rate hikes.” Recently, New York Fed President John Williams said, per the WSJ, “We are not at restrictive policy yet.” The policymaker also added, “We need to get interest rates higher than longer run a neutral level.”

Amid these plays, CME’s FedWatch Tool hints at the 68.5% chance of a 75 basis points (bps) rate hike by the Fed in September.

Hence, the latest weakness in the US 10-year inflation expectations fails to compress the risk-on mood, as well as the US dollar strength.

Also read: EUR/USD stays defensive above 1.0000 despite hawkish ECBspeak ahead of EU inflation