Euro rises to highest since 2021 as USD dips on stagflationary worries

The euro has perked up to a fresh session high, which is also a fresh high since 2021 at 1.1747.

The pair has risen about 30 pips since the US released PCE data for May. The report showed slightly hotter core inflation than anticipated while spending/income both unexpectedly deteriorated. That’s the kind of data that could be put the Fed in a bind. If the economy is slowing it calls for rate cuts but the Fed can’t lower rates if inflation is also creeping up and remains above target.

For now, Fed officials have signalled cut quarter-point cuts in the remainder of this year via the dot plot, but that was a narrow majority with many seeing just one cut. In contrast, the market has priced in 65 bps in easing, perhaps sensing that the slower economy will ultimately win out.

Notably, this isn’t the first sign of consumer softening this year. Target last month highlighted a weakening consumer and yesterday, Circle-K owner Couche-Tard highlighted a struggling US consumer in the ‘lower end’ and ‘lower middle end’.

“Softness in traffic and fuel demand in the United States as low-income consumers were impacted by challenging economic conditions,” said CFO Filipe Da Silva.

To be fair, many other companies have said the consumer is fine but this week’s US Q1 GDP report also showed a weaker consumer.

This article was written by Adam Button at www.forexlive.com.