Trump Trade Keeps USD Bullish Despite Lower NY FED Inflation Expecttions

The Trump trade continues for the USD, pushing it higher relentlessly, despite the lower inflation expectations from the New York Fed today. EUR/USD broke below 1.06 which was supposed to be a decent support level, while Gold has fallen below $1,600, which opens the door for further declines to $1,500.

It has been a quiet day with few major economic reports and little news, leading to one-way price action in financial markets. The US dollar has seen a notable upward trend, making decent gains against all major currencies. The only significant release today was the UK labor market report, which came in with a more dovish tone, sending the GBP/USD pair down to 1.2719. Consequently, the broader market is experiencing declines while the US dollar rises, fueled by expectations of stronger economic growth in the US in 2025.

New York FED Inflation Expectations

• • 1-Year Expectation: 2.9% (down from 3.0% last month) – lowest level in four years
  • 3-Year Expectation: 2.5% (down from 2.7% last month)
  • 5-Year Expectation: 2.8% (down from 2.9% last month)
• Additional Insights:
  • Consumer expectations for missing minimum debt payments dropped in October for the first time in five months.
  • Consumers saw the lowest likelihood of a rise in U.S. unemployment over the next year since February 2022.
  • Expectations for job stability improved:
    • Lower perceived risk of losing current jobs
    • Increased optimism about finding a new job if needed
  • Unemployment Expectations: Fell to 34.5%, the lowest since February 2022.
  • Job-Finding Probability: Reached the highest level since October 2023.

Today’s New York Fed report reflects a significant easing in consumer inflation expectations across the short, medium, and long term, reaching multi-year lows. This drop in inflation outlook aligns with improved confidence in job stability and economic resilience, as consumers express a lower perceived risk of unemployment and an increased likelihood of finding employment if necessary.

The data suggests a more optimistic consumer sentiment, likely reducing immediate concerns about inflation pressures while reinforcing the view of a stable labor market. This could provide the Fed with more flexibility in its monetary policy approach, potentially easing the urgency for additional rate hikes if inflation expectations remain anchored.

Comments from the Richmond Fed President Barkin

• The Fed is positioned to respond effectively to economic developments.
• U.S. economy appears to be in a strong position.
• Labor market shows resilience.
• Labor market could either stabilize or potentially weaken further.
• Inflation may be nearing control but also risks staying above the Fed’s 2% target.
• Fed’s focus may shift between inflation risks and employment risks, based on future economic trends.

GBP/USD Live Chart