Dollar Hits Three-Year Low as Market Awaits Key PCE Data

Market Overview

Recent U.S. economic data has reinforced market expectations that the Federal Reserve will cut interest rates at least twice this year. This has driven Treasury yields lower across the curve, with the 2-year yield falling more than 6 basis points. The U.S. Dollar Index declined for the fourth consecutive session, hitting a three-year low.

On Wall Street, the S&P 500 closed near its all-time high, led by gains in tech stocks that propelled the Nasdaq to another record. In the commodities market, most metals traded higher, although gold ended flat amid heightened market caution. Investors are now focused on the upcoming Core PCE price index release, a key metric that could influence the Feds next policy moves and broader asset pricing.

Hot Topics to Watch

● Signs of Labor Market Weakness and Sluggish Consumer Spending

Continuing jobless claims in the U.S. have risen to their highest level since November 2021, suggesting longer unemployment periods. While initial claims remain stable, indicating firms are not engaging in widespread layoffs, hiring has clearly slowed.

Analysts note the labor market is currently characterized by “low hiring and low firing,” making it harder for job seekers to reenter the workforce.

Meanwhile, real GDP contracted at an annualized rate of -0.5% in Q1, worse than the expected -0.2% and reversing the 2.4% growth seen in Q4 2024—marking the first economic contraction in three years. Personal consumption growth was revised sharply lower to just 0.5%, its weakest reading since the onset of the COVID-19 pandemic. Additionally, the core PCE price index was revised up to 3.5%.

● U.S. Debt Shift: From Global to Domestic Hands？

Deutsche Bank warns of a dual deficit dilemma for the U.S.—rising fiscal deficits alongside a persistent trade imbalance. With limited political will for fiscal tightening, the most likely path forward resembles a “Pennsylvania Plan,” where the Treasury encourages a shift in U.S. debt ownership from foreign holders to domestic investors.

This could involve incentives such as:

• Attracting foreign capital through dollar-backed stablecoins

• Offering regulatory exemptions or tax benefits to spur domestic demand for Treasuries

Key Events to Watch

• 20:30 GMT+8: U.S. Core PCE Price Index (YoY & MoM) for May, U.S. Personal Spending MoM

• 21:15 GMT+8: Fed Governor Lisa Cook and 2026 FOMC voter Loretta Mester to speak at the “Fed Listens” event

• 22:00 GMT+8: Final reading of University of Michigan Consumer Sentiment Index and 1-Year Inflation Expectations for June