The Dollar rally yesterday got a boost from the spike higher in USD/MXN, following US President Trump’s announcement that the US would impose a 5% tariff on imports from Mexico on 10th June, with the Dollar trade-weighted index appreciating to its strongest level since mid-December.
But the Dollar rally has fizzled today, despite US income and spending growth in April coming in higher than expected at 0.5% mom and 0.3% mom, respectively. Markets seem to have focused on the release of core PCE inflation in April – the Federal Reserve’s preferred measure of inflation – which came in line with expectations at 1.6% yoy, raising concerns that muted US inflation may not be transitory.
The GBP/USD cross, which has been on a multi-week downward slide, is broadly unchanged from yesterday above 1.26 although it did temporarily drop to 1.256 around lunchtime. EUR/USD has managed to inch higher but is still down 0.5% from a week ago.
