Market sentiment is improving during Thursday morning, despite looming geopolitical concerns and hawkish Federal Reserve (Fed) concerns. The reason could be related to the recent decline in US inflation expectations according to the 10-year and 5-year break-even inflation rates from the Federal Reserve System of St. Louis (FRED).
That means 10-year inflation expectations under the above measure fell from their highest levels since Dec. 2 to 2.41% by the end of the North American trading session on Wednesday, after rebounding to a two-month high the previous day.
Along the same line, five-year US inflation expectations fell to 2.52% in its latest data, from the highest levels since November 2022.
It should be noted that early signs of inflation are losing positive momentum and may prompt the Fed to ease its hawkish bias, which in turn may weigh on the US Dollar Index (DXY). However, Friday’s Core Personal Consumption expenditure (PCE) January’s price index data will be more important as it is considered the Fed’s preferred gauge of inflation.
Also read: US dollar index: Hawkish Fed signals, geopolitical concerns favor DXY bulls near 104.50