Insights 
VT 
In June, business activity in the US private sector showed continued expansion. The S&P Global Composite Purchasing Managers Index was at 52.8 in June, a slight decrease from May’s 53.
The Manufacturing PMI remained steady at 52, while the Services PMI slightly decreased to 53.1 from 53.7. These figures exceeded analysts’ expectations.
Economic Uncertainty Amid Inflation
The report noted some uncertainty in the economic outlook amid rising inflationary pressures over the last two months. Despite this, the US Dollar Index saw a minor increase of 0.35%, reaching 99.10.
Economic activity continues to grow but remains pressured by inflation. The future outlook appears uncertain amidst ongoing economic adjustments.
What we’re seeing here is a continuation of moderate economic growth in the United States, even as early signs of strain begin to emerge. The data reflect a private sector that remains active, albeit with hints of hesitation creeping in. Although overall business activity expanded again in June, the slight dip from the previous month’s figure suggests that momentum may be softening, if only subtly.
Interpreting Market Signals
The stable reading in manufacturing is worth paying attention to—it indicates resilience in that space, at least for now. Manufacturing sentiment holding the line at 52 points to a sector not aggressively growing, but not contracting either. That’s not nothing in this environment. Meanwhile, the small slip in the services sector, from 53.7 to 53.1, might not appear much on paper, yet it’s enough to raise questions about whether consumers and businesses are starting to hold back slightly on activity.
Now, when we consider these numbers alongside the uptick in inflationary pressure, it leads us to a key tension. Growth is still intact, yes, but the price environment has become less predictable. That unpredictability is something we need to watch with care. It helps to think through what underlying forces might now dictate rate expectations and futures pricing going forward.
The 0.35% rise in the US Dollar Index to 99.10 isn’t dramatic, but it does reflect how markets may be reading the signals: slightly firmer growth, tempered by consistent inflation, can support the dollar in the short term. But this is not the kind of reaction that assumes smooth sailing. Instead, it’s almost as if the market is leaning in, absorbing each new data release with growing caution.
From our view, we see mounting tension between persistent inflation and the durability of current growth. That kind of environment tends to punish complacency in rate-path assumptions. Some participants may start adjusting their view on delays to rate cuts or even the potential for another hike, no matter how unlikely that seemed only weeks ago.
For us traders, this uncertainty in inflation and its staying power is what complicates the pricing of interest rate derivatives. It adds noise to the forward curve that many had hoped would be smoothing out by now. If expectations for policy easing become less anchored, implied volatilities could start to creep up again, particularly at the shorter end.
