Insights 
VT 
Annual inflation in the United States, gauged by the Personal Consumption Expenditures (PCE) Price Index, increased to 2.3% in May, up from 2.2% in April. The core PCE Price Index, excluding food and energy, rose to 2.7% in the same period.
On a monthly basis, the PCE Price Index and the core PCE Price Index increased by 0.1% and 0.2%, respectively. Personal Income dropped by 0.4% month-on-month, while Personal Spending decreased by 0.1%.
Impact On The Us Dollar
Following the PCE data release, the US Dollar Index decreased by 0.25%, standing at 97.10. The US Dollar was observed to be weakest against the British Pound over the week.
A forecasted core PCE Price Index rise of 0.1% month-over-month for May was anticipated. Core inflation over the last year is expected to rise to 2.6%, up from 2.5% in April.
Market participants look for the Federal Reserve to maintain interest rates in July. The probability of a rate cut in September stands at 70%, while a July rate reduction chance is seen at 18%.
The core PCE Price Index remains a critical gauge for Federal Reserve policy decisions. Changes in this index influence market expectations and currency valuation.
The latest inflation data from the United States has added more weight to what we already suspected: price pressures, while generally easing, are not subsiding quickly enough to justify near-term policy changes. With the year-on-year core PCE rising to 2.7%—above earlier projections and a slight uptick from the month before—the mood has shifted only slightly but measurably. Expectations had been for a softer print, but this subtle overshoot might still be enough to keep the US central bank in cautious mode for now.
Monthly readings were modest, with the headline figure logging a 0.1% rise and the core climbing by 0.2%. Clearly, inflation momentum is no longer climbing rapidly. That said, the annualised pace tells us that the goal is still some distance away, particularly when viewed through the Fed’s preferred lens.
Meanwhile, we’ve seen personal income fall slightly, down 0.4% in May, while consumption also contracted by 0.1%. These figures could present a near-term challenge: a softer consumer base at the same time as inflation remains sticky could make policy decisions even trickier heading into the second half of the year.
Following the data, the US Dollar softened, with a 0.25% pullback on the DXY bringing it to 97.10. It underperformed the most against the British Pound, which gained steadily over the week. This reversal is unsurprising considering the inflation profile and the shift in rate cut probabilities.
Markets now lean toward a rate hold in July, with only a slim chance—about 18%—of a cut at that meeting. However, September is drawing more attention. The 70% probability priced in suggests that most are positioning for easing in the early autumn. Still, nothing is guaranteed; those odds can invert on a single strong economic report.
Federal Reserve’s Emphasis On Core PCE
The central bank continues to place heavy emphasis on core PCE as its inflation guide. Every decimal point here matters. And with the May reading showing a slight increase rather than a plateau or a retreat, hawkish members of the committee will likely feel emboldened. This influences both rate speculation and dollar behaviours.
For now, what we’re seeing is an implicit warning. It’s not yet the time to lean aggressively into high-beta strategies tied to easing. Market participants should be light on front-loaded rate cut bets, especially ahead of key data like payrolls or ISM indices.
We’re not pricing in an abrupt shift in rhetoric or action—just a slower recalibration. Timing and sequencing are increasingly tactical. Any moves should be layered in to account for both policy inertia and emerging cyclical signals. Unwinding too early risks getting caught flat-footed.
Where the data does offer some relief is in the spending print. The dip in consumption might ease some pressure on demand-driven components of inflation, especially services. But more confirmation is needed before changing course.
Seen together, these trends mean that interest rate-sensitive positioning remains volatile. Directional bets on cuts, particularly before September, should be hedged or structured to withstand further delays. This is especially true when considering the Fed’s communication style, which remains deliberately non-committal.
In short, measured recalibration rather than pivot is the more prudent approach—at least until further numbers show either definitive weakening or renewed pricing pressure.
