- The US dollar lost ground against its G10 peers yesterday after core CPI cooled for the first time in six months, aided by another month of deflation in core goods and easing in core services costs. Markets had been expecting a headline print of 0.4% for April, however a weaker than expected print of 0.31% helped to increase the odds of a September rate cut from the FOMC. Whilst one month’s data is unlikely to shift the needle and Fed officials will likely need further convincing, Fed funds futures moved to price as many as two full cuts before the end of the year. Retail Sales came in flat against expectations of a small gain, and this coupled with the slight nudge lower in inflation will likely make the FOMC more comfortable holding rates unchanged until rate setters gain more confidence that inflation is on a sustainable path to the 2% target.
- After the data release, treasury yields fell, and dollar index lost ground as markets anticipated an early rate cut from the Fed. The Japanese yen gained, trading as low as 153.60 and EURUSD moved to within a whisker of 1.09, running into offers at 1.0895. GBPUSD followed a similar pattern, breaching resistance at 1.2650 to trade briefly through 1.27 before consolidating.
- US jobless claims will be scrutinised this afternoon after last week’s print came in above expectations. A persistent rise in claims would suggest that the labor market may be deteriorating more quickly, so today’s print will give a further insight to the strength of the labor market.
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