Inflation data pushes USD down

Daily Currency Update

Demand for the US dollar dipped against all major currency pairs following positive inflationary news. In particular, USD printed a shocking yearly low against one of its major peers, the EUR. Inflation in the US decelerated more than expected, coming in at 3%, and down from 4% last month. The core CPI fell from 5.3% to 4.8%. On a monthly basis, the overall CPI basket went from 0.1% to 0.2%, below the expected 0.3%. The core went from 0.4% to 0.2%, declining US inflation will set the road ahead with a much clearer path for the Federal Reserve policymakers in the upcoming months.

There was a drop in the benchmark U.S. Treasury yields, now at about 3.9%, down by approximately 8 basis points (bps). The Greenback is set to remain under pressure as the disinflationary trend continues. Tom Barkin of the Federal Reserve Bank of Richmond commented that stepping away too soon on policy rates would require the Fed to do even more in the future and the rate of inflation in the US is still on the higher side. Meanwhile, Neel Kashkari of the Ninth District Federal Reserve Bank of Minneapolis said that banks need to be ready for entrenched inflation. Taking these comments into consideration, markets are betting for an end of the Fed's rate hiking campaign later this year, although a 25 bps hike is fully anticipated at the July 26th policy meeting.