The Federal Reserve’s preferred inflation rate fell in May, offering signs that consumer spending may be slowing.

The combination has led to some selling in US dollars as the quarter winds down. The move may have been overdone as USD movement has been one-way all week, led by a number of surprisingly strong data points. Today, core inflation was at 4.6% versus the expected 4.7%.

In response, USD/JPY fell to 144.35 from 144.60, but has since retraced much of the declines as risk appetite has increased due to less fear of higher Fed rates. The euro, pound and commodity currencies also climbed and held on to gains.

EUR/USD 10 min

The spending side was also a factor, with real personal consumption flat in the month and April’s figure revised up to +0.2% from +0.5%. It paints a picture of a slightly slowing economy and inflation falling towards target. Total PCE prices rose 3.8% y/y from 4.4% in the previous month.

US core PCE

I expect to see more flow-driven trading today, especially at the 4pm London fix.

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