The DXY Index rebounded by 0.6% to 99.5 overnight after US markets returned from Monday’s Memorial Day holiday. The USD’s recovery started during the Asian and European sessions on the US Treasury 30Y yield easing below 5% for the first time in four days. An improvement in US consumer confidence provided the final boost during the US session via a 2.1% surge in the S&P 500 Index to 5922, its first rise in five days. The improved risk appetite overnight should spill over into today’s session and help reverse some of yesterday’s losses in non-USD currencies. The Fed may underpin sentiment if it postures towards a September rate cut, a signal that the US economy is no longer exceptional enough to support the USD in the long term. DXY remains soft below 100.
The US Conference Board’s consumer confidence index rebounded to 98 in May from 85.7 in April, contrasting sharply with the decline in the University of Michigan’s consumer sentiment index to 50.8 from 52.2. The Conference Board’s survey was conducted after May 12, when America and China significantly lowered the above-100% tariffs imposed on each other and started a 90-day pause for trade talks. The Conference Board noted that the rebound was already visible before May 12. We reckoned US consumers were heartened by the recovery in US equities above the levels seen before the April 2 “Liberation Day” tariff announcement. They were less pessimistic about business conditions, job availability, and future income prospects. However, consumers continued to place tariffs as the top worry, especially how they would lift prices and weigh on economic activities.
Despite the better soft data for consumers, hard data weakened in the business sector. US durable goods decreased by 6.3% MoM sa in April after a 7.6% increase in March. Following months of frontloading imports to beat tariffs, businesses turned cautious about the longer-term outlook because US President Donald Trump’s unpredictable trade policy implementation increased input costs and tightened credit conditions. If the soft patch extends into May-June, it may indicate early signs of a slowdown in business spending.
Today’s FOMC Minutes may show the Fed opening the door for a rate cut in September. Fed President Neel Kashkari (Minneapolis) doubted if the Fed could lower rates before September. John Williams (New York) said it would take time beyond June-July for a clearer outlook, i.e., for tariffs by the end of 90-day pauses in July-August and the passage of Trump’s “One Big Beautiful Bill” by August. Thomas Barkin (Richmond) wanted to see if businesses would continue to hold off on future investment and hiring decisions after the tariffs were implemented. Austan Goolsbee (Chicago) considered tariffs as stagflationary, Mary Daly (San Francisco) as inflationary, and Alberto Musalem (St Louis) emphasized the need to anchor long-term inflation expectations. Raphael Bostic (Atlanta) postured towards only one interest rate cut this year, opening speculation that the Fed may reduce the two cuts projected in its Summary of Economic Projections at the June FOMC meeting.
Quote of the Day
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May 28 in history
In 1923, the US Attorney General said it was legal for women to wear trousers anywhere.
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