The US dollar weakened to finish the month and week, as investors continued to dive into equities. The greenback, traditionally a safe-haven asset, has slumped on expectations that the Federal Reserve is close to finishing its quantitative tightening cycle. With decent economic data and lower inflation expectations, the buck could further slow in the second half of 2023.

On Friday, the annual personal consumption expenditure (PCE) price index eased to 3.8% in May, down from 4.3% in April, according to the Bureau of Economic Analysis (BEA). The core PCE, which strips the volatile energy and food sectors, dipped to just 4.6% in May, down from 4.7%.

PCE and core PCE are the Fed’s preferred inflation gauges as it is far broader than the consumer price index (CPI) alternative.

Meanwhile, consumer sentiment has improved significantly now that the US debt ceiling crisis has ended and inflation growth is slowing.

The University of Michigan Consumer Sentiment Index surged to 64.4 in June, up from 59.2 in May. This was also better than the market estimate of 63.9. The Current Conditions Index and the Consumer Expectations Index advanced to 69 and 61.5, respectively. The one-year-ahead inflation expectations tumbled to 3.3%, down from 4.2%.

“Overall, this striking upswing reflects a recovery in attitudes generated by the early-month resolution of the debt ceiling crisis, along with more positive feelings over softening inflation. Views of their own personal financial situation were unchanged, however, as persistent high prices and expenses continued to weigh on consumers,” said Surveys of Consumers Director Joanne Hsu in a statement.

Despite better-than-expected economic data this week, recession talk is still at a fever pitch.

“Maybe the recession is delayed, but I still think it is going to be hard to avoid,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors, in an interview with MarketWatch. “The Fed has a propensity to break the economy by raising interest rates until they do so.”

The Atlanta Fed GDPNow Model estimate suggests the second quarter will show the US economy expanding 2%.

Still, all the conventional recession indicators are flashing red, including the US Treasury market. The three-month and ten-year yields and the two-year and ten-year yields have been inverted for all of 2023.

The benchmark ten-year yield shed 1.3 basis points to 3.841% on Friday. The one-month bill shed 4.5 basis points to 5.187%, while the 30-year bond dropped 4.8 basis points to 3.864%.

The US Dollar Index (DXY), a gauge of the greenback against a basket of currencies, fell 0.41% to 102.92, from an opening of 103.34. The index was flat on the week and is down 0.58% year-to-date. The DXY slumped 1.05% in June.

The USD/CAD currency pair was flat at 1.3247 on Friday. The EUR/USD advanced 0.24% to 1.0924, from an opening of 1.0914.