The dollar softened broadly today, pressured by slightly cooler-than-expected PCE data which provided some relief from higher rates along with optimism around a proposed Memorandum of Understanding to kick off advanced peace talks. Both developments added to the headwinds of safe-haven demand for the greenback.
Below is the list of the currencies which advanced the most vs the USD
- New Zealand Dollar – +0.54%
- Canadian Dollar +0.44%
- Swiss Franc +0.37%
- Australian Dollar – +0.32%
- Euro – +0.22%
- Japanese Yen +0.16%
- British Pound – +0.10%
The commodity-linked Aussie, Canadian Dollar and Kiwi led gains, likely buoyed by the risk-on tone from the peace talk developments. The Euro and Sterling also firmed modestly.
| Treasury Issue | Yield | Yield Change |
|---|---|---|
| 2-Year Note | 4.0246% | -0.008 |
| 5-Year Note | 4.1564% | -0.025 |
| 7-Year Note | 4.2931% | -0.023 |
| 10-Year Note | 4.4492% | -0.032 |
| 30-Year Bond | 4.9767% | -0.034 |
In the US debt market today, Treasury yields moved lower across the curve, with the longer-end leading the decline. The 10-year yield fell 3.2 basis points while the 30-year yield dropped 3.4 basis points, reflecting stronger demand for longer-duration debt and a more favorable tone in the bond market. The move lower in yields also came as softer inflation concerns and easing geopolitical tensions helped support buying in Treasurys.
7-year auction: The U.S. Treasury’s 7-year note auction was met with solid demand from international buyers, helping keep downward pressure on yields.
Fed officials were less hopeful about inflation although uncertainty continues to persist.
New York Fed President John Williams struck a balanced tone, leaning slightly hawkish overall as he emphasized the importance of keeping inflation expectations anchored and reiterated the Fed’s commitment to returning inflation to the 2% target. Williams acknowledged the U.S. economy and labor market remain solid, while highlighting rising productivity trends supported in part by AI and broader U.S. economic dynamism. However, he warned that supply-chain disruptions tied to the war could push inflation higher in the near term, with headline inflation expected to peak near 4% and core inflation around 3% in coming months. Despite those concerns, he said longer-term inflation expectations remain stable and stressed that monetary policy is currently “well-positioned.” Williams repeated that future policy decisions will remain data dependent, signaling the Fed is not ready to commit to either easing or tightening until the inflation and growth outlook becomes clearer.
St. Louis Fed President Alberto Musalem also struck a cautious and somewhat hawkish tone in remarks today, emphasizing that inflation risks remain tilted to the upside even as the Fed keeps policy steady. Musalem said the Fed’s real policy rate is now below the long-run neutral rate, while longer-term inflation expectations have started to drift higher and the labor market remains stable. Against that backdrop, he argued that policymakers need to maintain a “vigilant focus” on returning inflation to the Fed’s 2% target and warned that the process is likely to take longer than previously hoped. He added that if disinflation does not resume over the next one to two quarters, it would become a growing concern, particularly if inflation expectations continue to rise.
Musalem also pushed back against the idea that stronger productivity gains from artificial intelligence will quickly solve the inflation problem. While acknowledging AI could eventually improve productivity, he said current evidence remains inconclusive and that relying on future productivity gains to offset present inflation pressures would be risky. He reiterated that the possibility of another rate increase is “greater than zero,” noting there is a scenario where the economy may require tighter policy if inflation remains sticky. At the same time, he acknowledged a separate path where growth slows later this year and inflation eases, which could open the door to rate cuts. For now, however, Musalem said risks remain skewed more toward inflation than toward weaker growth. He also noted that recent moves higher in bond yields largely reflect expectations for a higher neutral rate and said he supported removing the Fed’s prior “easing bias.” Overall, the comments leaned hawkish, with Musalem signaling the Fed is not yet confident inflation is moving sustainably back toward target.
Fundamentally, the April PCE inflation report offered a mixed but slightly encouraging picture on inflation, with monthly price pressures coming in a bit softer than expected while annual readings remained sticky. Core PCE, the Fed’s preferred inflation gauge excluding food and energy, rose 0.2% for the month versus 0.3% expected, while the year-over-year rate came in at 3.3%, matching estimates but ticking up from 3.2% previously. Headline PCE also came in a touch softer on the monthly basis at 0.4% versus 0.5% expected, while the annual rate held at 3.8% as forecast. More encouraging for the Fed, services inflation excluding energy and housing slowed to 0.1% from 0.3% last month, while broader core measures excluding food, energy, and housing rose 0.2%, also cooler than the prior month.
On the consumer side, however, the report showed signs of softening demand and increasing financial strain. Personal income was unchanged in April versus expectations for a 0.4% rise, while personal spending increased just 0.1%. Real PCE rose only 0.1%, suggesting consumers are becoming more cautious as higher prices and borrowing costs weigh on budgets. The personal savings rate fell to just 2.6%, a historically low level that highlights how much consumers have drawn down pandemic-era savings. Historically, U.S. savings rates have averaged closer to 5%–8%, making the current reading one of the weakest in decades and closer to levels seen ahead of the 2008 financial crisis.
The initial market reaction saw Treasury yields move modestly lower as traders focused on the softer monthly inflation readings, although the year-over-year inflation data still remains well above the Fed’s 2% target. Overall, the report suggests inflation progress is continuing, but only gradually, while cracks are beginning to emerge in consumer finances and spending trends.
U.S. durable goods orders surged 7.9% in April, well above the 3.5% expected increase, driven largely by a sharp rise in transportation equipment orders, particularly aircraft bookings. The gain followed an upwardly revised 1.3% increase in March, signaling continued strength in headline manufacturing demand. Excluding transportation, orders still rose a solid 1.1%, beating the 0.5% estimate, while orders excluding defense jumped 8.1% after a decline the prior month.
Despite the strong headline numbers, the report had a softer underlying tone for business investment. Non-defense capital goods orders excluding aircraft — the closely watched core capex component that feeds into GDP calculations — fell 1.1% versus expectations for a 0.4% increase. That decline followed a strong upwardly revised 3.9% gain in March, suggesting some payback after prior strength rather than a collapse in investment demand.
Overall, the report points to resilient manufacturing activity on the surface, boosted by large transportation orders, but more moderate momentum underneath in core business spending. Markets often look beyond the volatile aircraft-driven headline number and focus more closely on the softer core capital goods data as a better gauge of future business investment trends.
