US inflation expectations trace firmer yields to underpin hawkish Fed bias

US inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data, rise to the highest levels in a week and justify the recently hawkish Federal Reserve (Fed) expectations, which in turn propel the yields. The same should have underpinned the US Dollar rebound but an absence of the Fed policymakers’ comments, due to the pre-FOMC blackout, joins a light calendar to restrict immediate USD moves.

That said, interest rate futures suggest an increase in the market’s bets on the Federal Reserve’s (Fed) 25 basis points (bps) of rate hike in July, even as June rate hike concerns are minimal.

It should be noted that the 5-year inflation expectations per the aforementioned calculations rise to the highest level in a week to around 2.15% by the press time whereas the 10-year counterpart rose for the third consecutive day to refresh weekly top near 2.21% at the latest.

Given the US inflation expectations and upbeat US Treasury bond yields, the US Dollar is likely to pick up bids. That said, the greenback’s gauge versus the six major currencies, namely the US Dollar Index (DXY), remained sluggish on Wednesday, mildly offered around 104.10 at the latest.

Also read: Forex Today: Another hawkish surprise shows inflation remains central bank’s main concern