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13 June 2024 | FXGT.com

US Dollar Drops on Lower CPI, Rebounds Post-Fed Press Conference

  • US Dollar Experiences Volatility Amid Key Announcements: The US dollar had a turbulent day yesterday, influenced by major news events. During the early American session, the dollar dropped sharply after CPI inflation data came in lower than expected. This fuelled hopes for a more dovish stance from the Federal Reserve. However, following the Fed’s press conference and remarks from Chairman Jerome Powell, the dollar rebounded, recovering some of its earlier losses.
  • May CPI Shows No Monthly Increase: In May, the U.S. consumer price index (CPI) remained unchanged on a monthly basis, indicating a slight easing of inflation. On an annual basis, the CPI rose by 3.3%, slightly below economists’ predictions of a 3.4% annual rise. Core CPI, which excludes food and energy prices, increased by 0.2% monthly and 3.4% annually. Both figures were lower than anticipated.
  • Federal Reserve Maintains Interest Rates, Signals Limited Cuts: The Federal Reserve has decided to keep its key interest rate unchanged as expected, and further indicating that only one rate cut is anticipated before the end of the year.
  • FOMC Adjusts Rate Cut Projections: Following a two-day meeting, the Federal Open Market Committee (FOMC) removed two of the three rate cuts they had previously expected in March. The committee also signalled a higher long-term interest rate than previously forecasted.
  • Inflation Concerns: The Fed acknowledged that while inflation has eased, it remains elevated. There has been slight progress towards the Fed’s 2% inflation goal in recent months. New projections reveal modest optimism about inflation returning to the target, suggesting some policy easing later this year.
  • Updated Inflation Outlook: The FOMC raised its 2024 inflation outlook to 2.6%, or 2.8% excluding food and energy—both up by 0.2 percentage points from March. The Fed’s preferred inflation measure, the personal consumption expenditures price index, recorded April readings of 2.7% and 2.8%. The Summary of Economic Projections (SEP) forecasts that inflation will return to the 2% target by 2026.
  • Fed Chairman Powell’s Comments: In his press conference, Chairman Jerome Powell reiterated the Fed’s cautious stance, stating that more positive data is needed to ensure inflation is moving sustainably towards the 2% target. Powell emphasized that the Fed will likely maintain elevated interest rates to achieve sustainable progress towards its inflation goals.
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