US 10-year inflation expectations rebound from three-week low

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, extend Friday’s recovery from a three-week low while flashing 2.48% level by the end of Tuesday’s North American trading session.

In doing so, the US inflation precursor rises for the second consecutive day while taking clues from the firmer US data and hawkish Fed bets ahead of US Federal Reserve (Fed) Chairman Jerome Powell’s speech.

That said, US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high.

It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Given the recently increasing hawkish hopes from the Fed, backed by firmer data, the US dollar may witness further upside.