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12/07/2024 - 07:53 UTCThe U.S. dollar fell sharply against most majors on Thursday, with the dollar index (USDX) down by 0.53% to hit one month lows, trading close to the 104.0 mark. The move was mainly attributed to softer than anticipated inflation numbers seen in the Consumer Price Index which fell 0.1% on a monthly basis, instead of the expected 0.1% increase. On an annual basis, it increased 3%, lower than the expected 3.1% rise. Bond yields also declined as market participants are pricing in future interest rate reductions by the Federal Reserve. In response to the CPI announcement, Treasury yields also declined as market participants priced in the expectation of future interest rate reductions.
Traders are raising bets for a September rate cut as seen in the CME FedWatch tool, with the likelihood currently at 86.4%. Expectations for a rate cut in November fell from levels above 50% to 44.4%.
In other news, the yen strengthened against the dollar following the softer-than-expected consumer price index data sparking some speculation that the Japanese government had intervened in currency markets. Local media reports said the Bank of Japan had conducted a rate check for the yen against the euro, a move that is considered a signal of intervention.
Wall Street suffered a selloff on Thursday, in a move that according to reports is the result of heavy profit taking, even as inflation showed signs of cooling. The US tech 100 fell by a sharp 2.2%, the US 500 declined by 0.81% and small-cap stocks, as measured by the US 2000 Index, rose by as much as 3.6%.
Some price action could be observed later today, upon the release of the U.S. Producer Price inflation data and the University of Michigan consumer sentiment index and inflation expectations survey.
The EUR/USD pair surged to a five-week peak on Thursday, supported by a widespread sell-off of the US Dollar following the softening of US Consumer Price Index (CPI) inflation figures to the slowest growth rate since late 2021
In June, US CPI inflation fell below expectations. The annualized headline CPI inflation decreased to 3.0% YoY from the previous 3.3%, surpassing the forecasted 3.1%. Additionally, CPI inflation dropped by -0.1% MoM in June, down from the previous month’s 0.0% and below the anticipated 0.1%.
For the week ending July 5, US Initial Jobless Claims decreased to 222K, down from the revised 239K of the previous week and outperforming the forecasted 236K.
Following the significant deceleration in US CPI inflation, market anticipations for an interest rate increase by the Federal Reserve (Fed) now suggest the potential for three quarter-point rate reductions in 2024. According to the CME's FedWatch Tool, there is a 95% surge in the probability of a rate decrease in September
Friday’s US Producer Price Index (PPI) wholesale inflation print, which could disrupt the plans for rate-cut hopefuls.
Gold prices traded above $2,400s on Thursday after the release of US Consumer Price Index (CPI) data for June showed price pressures cooling. The lower-than-expected CPI data makes it more likely the Federal Reserve (Fed) will see fit to cut interest rates in the near term, which is positive for Gold since lower interest rates reduce the opportunity cost of holding the non-interest bearing asset.
Gold is also benefiting from further emerging data showing that central banks are continuing to hoard all over the world.
US CPI rose 3.0% year-on-year in June, falling below estimates of 3.1% and the previous month's 3.3%. Core CPI, which excludes volatile food and energy components, meanwhile cooled to 3.3%, falling below expectations of 3.4% from 3.4% previously.
On Thursday, oil prices experienced a second consecutive session of growth, driven by growing optimism for U.S. interest rate cuts following an unexpected deceleration in inflation. The prospect of slowing inflation and potential interest rate reductions is expected to stimulate increased economic activity.
The release of this data resulted in a decline in the U.S. dollar index, which is anticipated to provide support for oil prices, as a weaker dollar has the potential to increase demand for dollar-denominated oil among buyers using alternate currencies.
U.S. stocks experienced a decline on Thursday, despite a decrease in inflation, signalling a potential slowdown in the U.S. economy that could lead to interest rate cuts by the Federal Reserve later this year. Even though there was growing optimism regarding potential interest rate cuts, most Wall Street indexes retreated from their recent record highs on Thursday. The US 30, however, ended the session slightly higher.
The market was impacted by significant losses in the technology sector, as investors seized profits following a period of steady growth driven by excitement about artificial intelligence.
Attention has now shifted to the upcoming second-quarter earnings season, which will kick off with a number of key bank earnings reports on Friday.
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