NEW YORK: The US yield curve was slightly steeper on Friday, with yields largely unmoved by stronger-than-expected producer price data as market expectations of an interest rate cut in July held firm.

US producer prices rose slightly in June even as the cost of energy and other goods dropped for a second straight month, beating economists' expectations that prices would be unchanged. The Labor Department report comes on the heels of strong consumer price data published on Thursday, suggesting overall inflation could continue to rise moderately despite the gains in consumer prices.

Inflation has consistently undershot the Fed's target and has been cited by the central bank as a risk as it weighs cutting interest rates in July for the first time since 2008. But market expectations of a rate cut were not swayed by the evidence of some inflationary pressure.

"The trend is what the committee wants to see. But in a week where we heard (Fed) Chairman (Jerome) Powell basically say that the very strong labor market data was a positive print and that's it, one individual dataset will not sway or set the committee's outlook going forward," said Michael Lorizio, senior fixed income trader at Manulife Investment Management.

"You probably have to keep that in mind looking at the inflation data over yesterday and today."

Powell on Wednesday delivered testimony to Congress in which he set the stage for a rate cut this month, focusing particularly on the threat the US-China trade war poses to the economy, while highlighting broader global weakness. Powell also downplayed a strong June jobs report and dismissed claims that the US labor market is hot.

The two-year Treasury note yield, which reflects market sentiment about changes in interest rate policy, was down less than a basis point to 1.847%. Longer-dated maturities gained, with the benchmark 10-year note yield up half a basis point to 2.125%, and the 30-year bond yield up 1.4 basis points to 2.653%.

Expectations of a 50-basis point interest-rate cut in July rose modestly, up to 24.5% from 19.9% on Thursday, according to CME Group's FedWatch Tool. A 25-point cut has been fully priced in by the market.

"The market reaction is probably what one would expect on a beat, which is minor bearish pressure and not much more," said Lorizio.