The USD closed 0.25% higher yesterday after a mixed North American session against its G10 counterparts, with the US 10-year Treasury yield falling 6 basis points after a strong $39B auction. The S&P 500 and Nasdaq indices set fresh all-time highs. Overnight, Chinese CPI and PPI data printed just below their forecasted levels. The PPI reading was the smallest contraction since February 2023 and marked the 20th consecutive month of negative readings.

In an encouraging sign for Fed officials, US CPI cooled in May. The monthly reading was flat (0.1% forecast), bringing the year-over-year reading to 3.3% (3.4% forecast). Core measures similarly came in 0.1% under expectations. The USD is down 0.5% after the release.

The June FOMC meeting is at 2 PM today, where the Fed is set to hold rates steady. Expectations are that we will likely see an updated dot plot indicating two 25-basis-point cuts for the remainder of the year, compared to three at the previous (March) update of staff projections. Of interest will be the split of voting officials that call for two or fewer rate cuts this year. The decision will be followed by a press conference by Fed Chair Powell.

EUR/USD fell 0.2% yesterday and is about 0.8% higher after the US CPI data, trading roughly 0.6% lower than this time last week. Several ECB officials spoke yesterday, reiterating that the central bank is not pre-committing to any rate path and that the first indications of easing wages and inflation expectations are being seen. German CPI data today came in as expected, at 0.1% m/m and 2.4% y/y. Several more ECB officials are speaking today.

GBP/USD closed marginally higher yesterday and is 0.9% higher after the US CPI data, trading slightly lower than this time last week. The UK labor market showed further signs of softness yesterday with more job losses than expected and increases in the unemployment rate and jobless claims. Wage growth was above expectations (5.9% versus 5.7% forecast). April GDP released this morning showed a slight beat, coming in flat versus a forecast of -0.1%. Industrial and manufacturing production slipped, while an index of services grew more than forecast.

USD/CAD closed flat yesterday and is down over 0.5% today after the US CPI data, trading about 0.6% higher than this time last week. Yesterday, the pair traded at its highest level since April 18. A light data week sees just Friday’s Manufacturing Sales data left on the slate. Rate cut odds for the July BOC decision have gained modestly since the BOC decision last week, presently implied at just under 75%.

USD/MXN is more than 13% higher over the last two weeks as investors continue to express caution that Mexican President-elect Sheinbaum will enact sweeping judicial and constitutional reforms after her landslide victory. The pair last traded at current levels in March 2023.