UoM Consumer Sentiment Index expected to remain depressed near historical lows in June

• The Preliminary Michigan Consumer Sentiment Index is seen ticking up to 46 in June from 44.8 in May.
• Consumer confidence is expected to have remained near historic lows as higher prices pinch purchasing power.
• UoM Consumer Sentiment reading is likely to add concerns about the economic consequences of inflation.

The University of Michigan (UoM) will release the preliminary estimate of June’s Consumer Sentiment Index on Friday. The report, measuring consumers’ feelings about personal finances, business conditions, and purchasing plans, is expected to show that consumers’ confidence remains depressed, at levels only beaten by May’s all-time low.

Economic confidence among US consumers is expected to have edged up to 46.0 in June, as measured by the UoM Consumer Sentiment Index, only marginally above May’s record low of 44.8. These figures show the lowest confidence levels since records began in 1952, and a more pessimistic view than during the 1970s Oil crisis, the 2008 recession, or the COVID pandemic. 

Hopes for a brighter future are also poor. The UoM Consumer Expectations Index is also foreseen as consolidating near historic lows, despite an uptick to 44.3 from May’s 44.1 reading. 

Consumption is a key contributor to US economic activity, accounting for about 70% of the country’s Gross Domestic Product (GDP). In that sense, the Michigan Consumer Sentiment Index is considered a reliable forward-looking indicator of US economic trends, and its release tends to have a significant impact on the US Dollar (USD)

What to expect from June’s UoM Consumer Sentiment Index report?

June’s release is expected to provide further evidence that US consumers are struggling amid the higher cost of living. The war in Iran and the subsequent blockade of the Strait of Hormuz have boosted energy prices, pushing costs higher through a wide range of products and services.

If preliminary UoM Consumer Sentiment Index figures align with market consensus, they are likely to shift the focus to the economic consequences of out-of-control inflation and might dampen some of the enthusiasm triggered by the bright Nonfarm Payrolls (NFP) report and the strong services and manufacturing activity data released last week.

May’s survey already highlighted an increasing concern about the inflationary impact on personal finances, an issue that is unlikely to have improved during the last weeks: “The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month.”, said Joanne Hsu, director of the University of Michigan’s Surveys of consumers.

US Consumer Price Index (CPI) figures, released on Wednesday, endorse the view that US consumers are getting squeezed by inflation. Data from May revealed that prices accelerated to a 4.2% year-on-year pace, their highest level since April 2023, with energy prices jumping by a whopping 23.5% in the 12 months previous to May. 

When will the UoM Consumer Sentiment Index be released, and how could it affect the US Dollar?

The University of Michigan will release its Consumer Sentiment Index, together with the Consumer Inflation Expectations survey, on Friday at 14:00 GMT. The market consensus hints at a minor improvement from the previous reading, yet at levels reflecting a deeply negative sentiment. The risk is skewed to the downside for the US Dollar.

The Greenback has shown a solid bullish trend since early May, as investors seek safe assets amid uncertainty in the Middle East conflict. Beyond that, strong US data, namely a significant improvement in the labour market, has boosted hopes that the Federal Reserve (Fed) will be forced to raise interest rates before the end of the year, providing additional support to the USD.

The US Dollar Index (DXY), which measures the value of the USD against a basket of peers, has rallied more than 2% as tensions escalated in the Middle East, casting clouds over the US-Iran peace process.

Guillermo Alcala, FX Analyst at FXStreet, sees limited chances of a significant US Dollar reversal until the situation in the Middle East improves. ”The USD is likely to weaken if consumer confidence figures meet market expectations. Dips, however, are likely to find buyers with risk appetite subdued amid Iran’s conflict. Previous highs at the 99.50 area or the June 4 and 5 lows near 99.15 are expected to hold bearish attempts.”

On the upside, Alcalá sees resistance at the 100.30 and 100.65 areas as the main hurdles for bulls: “Upside attempts are likely to be tested ahead of the April 6 high near 100.30, which, so far, is closing the path to the year-to-date high, in the 100.65 area.”