12 July 2024 | FXGT.com
Markets React to First Negative MoM Inflation Print Since 2020
- Latest US Inflation Data: The Consumer Price Index (CPI) for June showed headline inflation decreasing to 3.0% year-over-year (YoY) from 3.3% in May, below the forecasted 3.1%. Core inflation remained steady at 3.4% YoY. Month-over-month (MoM) inflation decreased by -0.1%, contrasting with the expected 0.1% increase. June 2024 marked the first negative MoM inflation print since May 2020.
- Analysis and Implications: This marks the third straight month with declining CPI inflation. This trend of declining CPI inflation, combined with a cooling labour market, puts pressure on the Fed to consider rate cuts sooner rather than later. Despite this, Fed Chair Jerome Powell reiterated the need for more substantial evidence of inflation moving toward the 2% target before making any rate changes.
- Rate Cut Odds: Market expectations for a September rate cut have surged following the latest CPI data. The CME FedWatch Tool now indicates an 92% probability for a rate cut in September, up from 73% the previous day. Powell emphasized the importance of timing in policy decisions to avoid economic disruption. Despite market optimism, the Fed remains cautious, with future decisions heavily reliant on forthcoming economic data.
- Market Reactions:
- US Stock Market: Major indexes like the S&P 500 and Nasdaq initially made new highs following the CPI data release. However, they retreated with a wave of profit-taking and a pivot away from tech stocks. Concerns about sustained growth and mixed sector performance also contributed to the pullback.
- US Dollar: The US dollar index (DXY) fell to 104.40, its lowest since early June, reflecting reduced appeal for the dollar amid rising rate cut expectations.
- Gold: Gold prices surged above $2,400 per ounce, driven by hopes for Fed rate cuts and a weaker dollar.
- USD/JPY and EUR/USD: The yen surged against the dollar amid intervention speculation, while the euro rose to $1.0880, its highest since early June. This movement reflects broader currency market adjustments to the latest US inflation data and Fed outlook.
- Upcoming US Data: Traders and investors are closely watching the upcoming PPI data, which will provide further insight into inflation trends. The PPI data, along with the University of Michigan Consumer Sentiment survey, could further influence market expectations and future Fed policy decisions.
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