US inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data, have been declining in the last one week, which in turn favors the market’s latest reassessment of the Federal Reserve’s (Fed) rate hike concerns.

That said, the downbeat prints of the US inflation precursors join mixed US data and unimpressive Fed talks to prod the US Dollar bulls amid cautious optimism in the market.

However, the anxiety ahead of the key ADP Employment Change, ISM Manufacturing PMI and S&P Global PMIs for May prods the US Dollar Index (DXY) bulls, which in turn allow the riskier assets to grind higher.

That said, the 5-year inflation expectations per the aforementioned calculations drop to the lowest levels since January 2021, around 2.07% by the press time whereas the 10-year counterpart revisit a two-week low surrounding 2.18% at the latest.

It’s worth noting, however, that the Fed policymakers are yet to confirm any softness in the price pressure and hence today’s key US data, as well as the US policymakers’ voting on the debt-ceiling bill in the Senate, should be closely eyed for clear market directions.

Also read: S&P500 Futures grind higher, yields stabilize as US House of Representatives pass debt ceiling deal