US inflation expectations retreat from multi-day high

Market sentiment improves during early Thursday, despite looming geopolitical fears and hawkish Federal Reserve (Fed) concerns. The reason could be linked to the recent pullback in the US inflation expectations, per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED).

That said, 10-year inflation expectations per the aforementioned measure eased from the highest levels since December 02 to 2.41% by the end of Wednesday’s North American trading session, after refreshing a two-month high the previous day.

On the same line, the five-year US inflation expectations retreated in their latest readings to 2.52%, from the highest levels since November 2022.

It should be noted that the early signals of inflation appear losing upbeat momentum and can push the Fed to ease its hawkish bias, which in turn may weigh on the US Dollar Index (DXY). However, Friday’s Core Personal Consumption Expenditure (PCE) Price Index data for January will be more important as it is considered the Fed’s preferred inflation gauge.

Also read: US Dollar Index: Hawkish Fed signals, geopolitical fears favor DXY bulls near 104.50