US July CPI printed exactly in line with forecasts, and the dollar softened as traders trimmed bets on a September rate hike. Core inflation matched its slowest annual pace since March 2021, nudging EUR/USD modestly higher while Treasury yields eased and US equities opened firmer.
The dollar gave back a little ground after Wednesday's inflation data landed where economists had penciled it in, and traders used the result to scale back expectations for the Federal Reserve's next move. Headline CPI rose 0.1% month-on-month and 3.4% year-on-year, down from 3.5%.
Core inflation matches five-year low
The report's more closely watched core measure told a similarly steady story. Core CPI increased 0.2% month-on-month and 2.5% year-on-year, matching the lowest annual pace since March 2021, down from 2.6%.
The Bureau of Labor Statistics said shelter costs rose 0.1% in July and accounted for roughly two-thirds of the monthly headline increase. Energy prices dropped 1.5% on the month after falling 5.7% in June, though they remain 14.7% higher than a year earlier, while food prices rose 0.2% month-on-month.
This inflation print can be read two ways. Its dovish side points to the slowest core pace in five years, buying the Fed time to weigh the fallout from the ongoing energy crisis. Its more hawkish side is that the length of the current overshoot still argues for vigilance, especially with growth solid and the labor market steady.
Dollar edges higher as rate-hike bets fade
The dollar eased to 1.1550 against the euro, from 1.1535 ahead of the release. At the same time, the market-implied probability of a 25-basis-point rate hike at the Federal Reserve's September meeting fell to 40% from 50%. US Treasury yields moved lower across the curve, with daily changes ranging between -2.1 basis points on the 30-year and -4.3 basis points on the five-year, while the main US equity benchmarks opened up to 0.5% stronger.
Next Wednesday's FOMC Minutes from the July meeting and the Kansas City Fed's Jackson Hole Symposium, running August 27-29, are the next scheduled events likely to shape rate expectations. The US Treasury also continues its mid-month refinancing tonight with a $42 billion 10-year note sale, followed by a $25 billion 30-year bond sale tomorrow — a test of demand after the 30-year yield matched its highest level since 2007 yesterday.
Source: ActionForex
Trading involves risk.
Risk Disclaimer
