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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.

Key Movers

The euro scrambled against the USD, climbing to its fresh yearly peak at the 1.1100 level. The European Central Bank (ECB) is expected to raise its benchmark policy rates by 25 bps at their policy meeting on July 27th. The current interest rate stands at 4% in the Eurozone. Another 25 bps hike will reinforce the ECB's hawkish stance as policymakers are in favor of further rate tightening if remains sticky. All in all, markets are betting on potential supplementary rate hikes by the ECB. Spain’s final inflation figures showed the CPI rose 1.9% in the year to June.

The GBP has swiftly regained all its losses against the US dollar amid the United States inflation data which has decelerated further. The GBP/USD pair has gathered enormous strength as unimpressive US inflation numbers may support a skip in the consecutive policy-tightening spree by the Fed. In the meantime, probabilities of a bulky interest rate hike from the Bank of England (BoE) have escalated and look imminent. Markets are currently predicting that the interest rates by the BoE may peak at the 6.25-6.50% levels.

The oil benchmark Brent futures surpassed $80 a barrel levels for the first time since May after the inflation data from the US. West Texas Intermediate (WTI), the US crude oil benchmark, holds the ground above the 75 levels.

Expected Ranges

  • EUR/USD: 1.0988 - 1.1125 ▲
  • GBP/USD: 1.2892 - 1.2998 ▲
  • AUD/USD: 0.6658 - 0.6791 ▲
  • USD/CAD: 1.3147 - 1.3258 ▼