US inflation expectations retreat from one-month high

US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, challenge the recently hawkish bias over the US Federal Reserve (Fed). The inflation precursors might have taken clues from the Fed policymakers’ dovish comments, including those from Chairman Jerome Powell, to challenge the US Dollar bulls. However, the previous day’s strong US data joins fresh fears from Ukraine to test the market’s optimism.

That said, the latest prints of the 5-year and 10-year inflation expectations portray a pullback from the one-month high to 2.46% and 2.39% respectively.

On Monday, US ISM Services PMI rose to 56.5 in November versus 53.1 market forecast and 54.4 previous readings whereas the Factory Orders also registered 1.0% growth compared to 0.7% expected and 0.3% prior. Further, S&P Global Composite PMI improved to 46.4 versus 46.3 initial estimations while the Services counterpart rose to 46.2 compared to 46.1 flash forecasts.

It should be noted that Friday’s US Nonfarm Payrolls (NFP) surprised markets by rising to 263K versus 200K expected and an upwardly revised prior of 284K while the Unemployment Rate matched market forecasts and prior readings of 3.7% for November. Following the upbeat data, Chicago Fed President Charles Evans said, "We are probably going to have a slightly higher peak to Fed policy rate even as we slow pace of rate hikes.”

Recently, the New York Times (NYT) released a piece of news suggesting Ukrainian drones attacked military bases hundreds of miles inside Russia and escalated war.

Amid these plays, the S&P 500 Futures print mild gains and US Treasury yields stay unchanged after the week-start fall in the prices of shares and bonds.

Also read: Forex Today: US Dollar’s comeback in the making?