FX.co ★ Treasuries Move To The Upside Following Inflation Data

On Friday, Treasuries experienced a significant upward movement, building on the modest gains seen in the previous session.

Bond prices surged early in the session and maintained a strong positive trend throughout the day. Consequently, the yield on the benchmark ten-year note, which moves inversely to its price, declined by 5.6 basis points to 4.200 percent.

The strength in Treasuries was driven by the release of closely watched inflation data from the Commerce Department, which bolstered confidence regarding an interest rate adjustment by the Federal Reserve in September.

According to the Commerce Department, its personal consumption expenditures (PCE) price index increased by 0.1 percent in June, following no change in May. This uptick matched market expectations.

The report also indicated that the annual growth rate of the PCE price index slowed to 2.5 percent in June, down from 2.6 percent in May, aligning with forecasts.

Additionally, the Commerce Department reported that the core PCE price index, which excludes volatile food and energy prices, rose by 0.2 percent in June, after a 0.1 percent increase in May. Economists had anticipated another 0.1 percent rise.

The year-over-year growth rate of the core PCE price index remained steady at 2.6 percent in June, contrary to economists' expectations of a deceleration to 2.5 percent.

"The subdued rise in prices will give the Federal Reserve greater confidence that inflation is on track to moderate toward its 2% target," stated Michael Pearce, Deputy Chief U.S. Economist at Oxford Economics. He added, "While we don't expect as favorable news in the coming months, it would require a significant upward surprise in inflation between now and September to prevent the Fed from cutting rates at that meeting."

These inflation readings, which are reportedly preferred by the Federal Reserve, were part of the Commerce Department's report on personal income and spending.

The report showed that personal income growth was below expectations, whereas personal spending increased in line with economist predictions.

Additionally, revised data from the University of Michigan indicated that U.S. consumer sentiment in July deteriorated slightly less than previously estimated. The revised consumer sentiment index for July was increased to 66.4 from the preliminary reading of 66.0, though economists had expected it to remain unchanged. Despite the upward revision, the July consumer sentiment index is still a decline from June’s 68.2 and marks the lowest reading since November 2023.

Looking ahead, next week's trading is likely to be influenced by reactions to the Federal Reserve's monetary policy announcement. While the Fed is broadly expected to maintain current interest rates, the accompanying statement could significantly affect the outlook for future rate adjustments.