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Slower US CPI inflation readings sent the odds of a September Fed cut to 93.5% from 73.5%. CPI inflation declined by 0.1% MoM, its first negative print since May 2020. Core inflation slowed a third month to 3.3% YoY (0.1% MoM) in June from 3.4% YoY (0.2% MoM) in May. Chicago Fed President Austan Goolsbee believed he had the evidence that inflation has resumed its decline towards the 2% target. San Francisco Fed President Mary Daly reckoned “some policy adjustments will be warranted” on evidence that monetary policy was working to cool inflation, employment, and the economy. However, Daly and Goolsbee did not offer guidance on when the Fed would start lowering rates.
We do not rule out some profit-taking before the weekend after the 0.6% plunge in the DXY Index to 104.44 on Thursday. Today, consensus sees PPI inflation rising to 2.3% YoY (0.1% MoM) in June from 2.2% YoY (0.2%) in May and excluding food and energy prices, to 2.5% YoY (0.2% MoM) from 2.3% YoY (0% MoM). However, sellers will likely return if the University of Michigan’s 1Y inflation expectations fall a second month to 2.9% in July, its lowest in March. They will be mindful that Fed Chair Jerome Powell has an interview at the Economic Club of Washington DC on Monday (July 15). Powell will likely describe the CPI inflation as very good and concur that the Fed is moving closer toward removing top-level restrictions in policy. However, he will probably defer signalling the timing to the FOMC meeting on July 30-31 or the Kansas City Fed’s Jackson Hole Symposium on August 22-24.
According to our USD strength momentum monitor, the USD is weakest against Developed Market currencies, led by the AUD, GBP, and EUR, as well as Southeast Asian currencies, ranked in the order of the MYR, SGD, and THB. This year’s two weakest currencies – the JPY and the CHF – are feeling less pressure from the Fed’s “higher for the longer rates” stance. The Mainichi newspaper reported that the Japanese government might have conducted currency intervention, while the Nikkei reported that the Bank of Japan conducted rate checks on the JPY against the EUR, a concern for speculators who favour yen carry trades. More so after the overnight sell-off in the S&P 500 and the Nasdaq Composite increased worries about future Fed cuts driving a rotation out of record-high equities into bonds.
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“Let us remember: One book, one pen, one child, and one teacher can change the world.”
Malala Yousafzai
12 July in history
In 2013, Malala Yousafzai addressed the United Nations, calling for worldwide access to education.
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