PCE Report: inflation drops to 2.6%, USD slides
Discover insights from the latest PCE report that led to a weaker US dollar. Learn how falling inflation rates and US interest rate adjustments may impact currency trading and investment strategies.

Key points
- Core PCE hit its lowest rate since 2021 in May
- Treasury yields and US dollar fell immediately following the release
- AUD/USD in particular is up 0.73% on the day
PCE inflation rate falls to 2.6%
May Personal Consumption Expenditures (PCE) statistics fell in line with expectations this morning with no change month over month. The headline inflation rate lowered to 2.6%, nearing the US Federal Reserve's target of 2.0%. This development indicates potential for the Fed to lower interest rates from their current 5.5%, as it aligns closer to their inflation target.
Lowest Core PCE since 2021
The core PCE, which excludes volatile food and energy prices, has dropped for the first time since February, signaling a reduction in long-feared persistent inflationary pressures. This change provides a relief for both economists and traders, suggesting a possible stabilization or even a downward trend in core inflation rates moving forward. This report could also give Jerome Powell and the Fed the confidence they need to lower interest rates this year.
US interest rates remain unfazed
Directly following the recent PCE data, US treasury yields experienced a significant drop, with investors adjusting their expectations towards the possibility of additional interest rate cuts. In the hours following, however, yields have rebounded—with the 10-year moving higher on the day.
US dollar depreciates against Aussie, yen
In spot forex markets, the US dollar has started to lose ground against the Australian dollar, with the AUD/USD exchange rate approaching 0.67000. AUD/USD has not sustained prices above that threshold since January, when the pair fell from above 0.6800. The US dollar is also at historic highs against the yen (USD/JPY) which continues to trade above 160.00.
Will US dollar collapse?
Despite the US dollar reaching historically high levels in recent years, the emergence of lower inflation could lead to reduced interest rates, subsequently diminishing demand for the dollar. In this scenario, the magnitude of dollar weakness would also depend on other regions, as USD could still be stronger than other currencies. The European Central Bank, for example, has already begun cutting rates, and may take them down more than the US.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.