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Cooler US CPI steepens Treasury curve, but Fed focus shifts later
DBS says energy prices fell 5.7% month over month and July rate-cut timing is now less certain, with Fed tightening bets pushed toward year end.
DBS Group Research analysts said a cooler June US CPI print gave temporary relief to Treasury yields, helping the US Treasuries curve bull steepen after headline and core inflation surprised to the downside.
FXStreet summarized DBS economist Samuel Tse and rates strategist Eugene Leow noting that headline CPI and core CPI came in at minus 0.4% and zero on a month over month seasonally adjusted basis, below consensus expectations. The analysts highlighted that nominal front-end yields were already elevated heading into the release, with 2-year yields pushing 4.3%, and that the downside inflation impulse was concentrated in falling energy prices, alongside a 0.4% month over month decline in core services less shelter.
They also pointed to uneven underlying pressures, with the computer software and accessories component noted as a bigger contributor to inflation amid the AI boom. Even so, DBS said the CPI data does not change the broader narrative for USD rates because resilient economic activity, strong equities, and a resurgence in oil keep inflation concerns and Fed tightening expectations from fading quickly.
According to FXStreet, DBS added that near-term positioning may remain on “pay-on-dip” behavior, but that July is no longer the live catalyst as softer CPI and a more subdued NFP print shift market expectations for tightening toward later in the year.