US inflation expectations hold onto recovery moves from three-month low

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, keep the one-week-old rebound from the lowest level since late February that was tested earlier in May.

That said, the inflation gauge remains steady near 2.71% during the last two days to Wednesday.

An absence of major data/events and repeated comments from the Fed policymakers seemed to have recently paused the inflation expectations. Even so, the bond rout hints at the firmer upside pressure on the inflation, which in turn could escalate the risk-off mood. The US 10-year Treasury yields dropped 11 basis points (bps) to 2.88% the previous day, mostly unchanged at around 2.89% by the press time of Thursday’s Asian session.

Given the firmer inflation expectations backing the ongoing flight to safety, the US dollar has the further upside to track while risk assets like equities and commodities may witness extended bearish bias.

Amid these plays, the US Dollar Index (DXY) fades the previous day’s bounce off weekly low, down 0.13% intraday near 103.75, whereas S&P 500 Futures decline 0.40% intraday at the latest.

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