Overview
On 25 June 2026, the U.S. dollar slipped, putting an end to a six‑day winning streak, as May core personal consumption expenditures (PCE) data came in‑line and slightly softer than market expectations. At 16:55 ET (20:55 GMT) the dollar index was down 0.2 percent to 101.43.
Inflation Data Details
The core PCE price index for May rose 0.3 percent month‑on‑month and 3.4 percent year‑on‑year, matching consensus estimates and ticking up marginally from April. On a headline basis, the PCE index increased 0.4 percent month‑on‑month and 4.1 percent year‑on‑year, versus analyst estimates of a 0.5 percent month‑on‑month rise and the same 4.1 percent year‑on‑year figure. Both year‑on‑year readings remain well above the Federal Reserve’s 2 percent inflation target and represent the highest levels since April 2023 for the headline measure and October 2023 for the core measure.
Market and Policy Context
The data arrived amid heightened geopolitical tension following the closure of the Strait of Hormuz after a U.S.–Israeli joint assault on Iran at the end of February, which had driven oil prices sharply higher and sparked an inflationary shock worldwide. The Federal Reserve, under new chair Kevin Warsh, subsequently issued a more hawkish set of economic projections than anticipated, with the updated dot‑plot indicating that at least half of the Federal Open Market Committee members anticipate rate hikes this year. This prompted markets to reprice rate‑hike expectations.
An interim peace deal between the United States and Iran earlier in June eased shipping traffic through the Strait of Hormuz, leading to a slide in oil prices; Brent crude futures for September fell back to levels seen before the conflict began. Wall Street analysts therefore view the May PCE report as potentially marking the peak of inflationary pressure stemming from the earlier crude price surge.
According to the CME FedWatch tool, the PCE release produced a marginal easing in the market’s probability of Fed rate hikes for the remainder of the year and a slight increase in the odds that the Fed will hold rates steady.
Expert Commentary
Diane Swonk, chief economist at KPMG U.S., stated that the inflation data confirms a pre‑existing floor under services‑sector inflation that kept overall inflation elevated and sticky, noting that the Middle‑East conflict amplified but did not solely cause the rise. Swonk added that the Fed had already begun debating rate hikes earlier in the year and that she still expects two rate hikes in the back half of the year.
Currency Movements
The euro edged up 0.1 percent to $1.1370, while the British pound rose 0.2 percent to $1.3191. The Japanese yen remained largely unchanged, with USD/JPY trading around 161.80, keeping the yen above the 160 level that has previously triggered intervention by Tokyo. The Australian dollar recovered from earlier losses, gaining 0.1 percent to $0.6910.
Australian Labor Market Data
Australia’s labor market added 40,300 jobs in May, the strongest increase in five months, although April’s employment figure was revised sharply lower. Capital Economics noted that while the employment data underscores a resilient labor market, it is unlikely to resolve the debate over the Reserve Bank of Australia’s next policy move, as persistent underlying inflation continues to support the view that the RBA could still deliver one final “insurance” rate hike.
Contributors
The article was contributed by Roushni Nair, Pranav Kashyap, and Jaiveer Shekhawat.