US inflation expectations marches to two-week high

Markets remain dicey during early Wednesday as traders await more clues to overcome the mixed sentiment backed by hopes of overcoming the banking crisis and indecision about the global central banks’ next moves amid the light calendar.

However, the cautious optimism and recently firmer US data put a bit under the US inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED). The same underpins the US Treasury bond yields and allows the Fed bets to remain firmer.

That said, the US 10-year and two-year Treasury bond yields grind higher after rising in the last two consecutive days while the CME’s FedWatch Tool suggests market players placing near 65% bets on another 0.25% rate hike for May 03 meeting.

It should be noted that the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) recently flashed a three-day and two-day winning streak respectively while posting the 2.31% and 2.34% level in that order. With this, the inflation precursors rose to the highest levels in a fortnight.

Given the latest run-up in inflation expectations, as well as the rebound in the US Treasury bond yields, the US Dollar should witness a corrective bound. However, it all depends upon Friday’s key inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index, also known as the Fed’s preferred inflation index.

Also read: Forex Today: Dollar keeps moving south as markets settle down