Market attention was focused on the key events in the US for the day, specifically the CPI release and the Federal Reserve statement, and these catalysts did not disappoint when it comes to volatility.
Both major market movers faced some surprises, which then led to significant volatility in the dollar pairs and risk assets.
Read on to find out what happened!
Titles:
- China headline CPI in May: 0.3% y/y (0.4% exp, 0.3% previous)
- China PPI in May: -1.4% y/y (-1.5% forecast, -2.5% previous)
- UK GDP in April: 0.0% m/m (0.0% forecast, 0.4% previous)
- UK goods trade deficit in April: -£19.6bn (-£14.2bn expected, -£14.0bn previously)
- UK industrial production fell 0.9% m/m in April, manufacturing output fell 1.4% (expected 0.2% decline, previous 0.3% rise)
- The US Department of Energy expects global oil demand to rise by 1.1 million barrels per day this year, compared to the previous estimate of 900 million barrels per day.
- US headline CPI in May: 0.0% (0.1% expected, 0.3% previous), YoY reading decreased from 3.4% to 3.3% (consensus 3.4%).
- US Core CPI in May: 0.2% m/m (0.3% expected, 0.3% previous)
- EIA crude oil inventories rose by 3.7 million barrels versus an estimated decline of 1.2 million barrels.
- The Federal Open Market Committee kept interest rates unchanged at 5.25-5.50% as expected, and noted “modest additional progress” in inflation.
- Fed forecasts indicated room for one rate cut this year, down from a previous estimate of three cuts
- Fed Chairman Powell stressed a data-driven approach when it comes to timing easing, adding that inflation has eased but remains very high.
- Bank of Canada Governor Macklem noted that monetary policy no longer needs to be as restrictive as it was before
- UK RICS house price balance in May: -17% (-5% consensus, -7% previous)
- Japan's BSI manufacturing index in the second quarter: -1.0 (-5.2 expected, -6.7 previous)
Broad market price movement:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Yields, Bitcoin Overlay Chart by TradingView
The calm before the CPI storm was very evident during the trading sessions in Asia and London, where most asset classes were consolidating ahead of the US top tier press release.
However, crude oil was an exception, as the commodity slowly crawled higher, perhaps still enjoying bullish sentiment from the DOE's improved global oil demand outlook. It gave up the majority of its gains when the EIA report recorded a surprise inventory increase of 3.7 million barrels instead of the expected 1.2 million barrel reduction in inventories.
Meanwhile, other asset classes went berserk during the US CPI release, with all numbers coming in the red and raising jitters from a potential FOMC statement later. Treasury yields took a hit while stocks, bitcoin and gold benefited from the ensuing dollar sell-off.
These large moves were reflected somewhat during the Fed's decision, as many were surprised to see the bullet chart forecast reduce the number of potential cuts for this year from three to just one.
US bond yields continued to recover throughout Powell's press while gold, Bitcoin and crude oil continued to decline. Interestingly, the S&P 500 has managed to hold its ground, as investors will likely turn their attention to the increase in potential 2025 interest rate cuts.
Forex market behavior: US dollar against major currencies
Overlay of the US dollar against major currencies Chart by TradingView
Dollar traders were biting their nails ahead of the US CPI report and the Fed statement, both of which came when it came to stimulating volatility across the board.
Consolidation appeared very tight among the major currencies, although there was a slight bearish bias for the dollar during the previous trading sessions, with the exception of USD/JPY. The actual CPI report led to a sharp decline in the US currency as all numbers came in below estimates.
From there, price action stabilized as traders looked ahead to the upcoming Federal Open Market Committee (FOMC) statement. Although the Fed kept interest rates unchanged as expected, the announcement and economic outlook were tighter than before, with policymakers noting “modest progress” in inflation and reducing their potential interest rate cuts from three to one this year. .
The dollar was able to maintain its rebound throughout Fed Chairman Powell's speech, where he acknowledged that they do not have enough confidence to start easing policy this time around.
Potential catalysts coming on the economic calendar:
- Swiss Producer Price Index at 6:30 AM GMT
- US PPI and core headlines at 12:30pm GMT
- US weekly jobless claims at 12:30 PM GMT
- BusinessNZ Manufacturing Index at 10:30pm GMT
- The Bank of Japan (BOJ) monetary policy statement is coming
Another set of high-level data points from the US economy are being released today, although perhaps not as popular as recent events. However, intraday dollar fluctuations are usually seen during the period US Producer Price Index and weekly initial jobless claims releaseSo you better stay on your toes!
After that, we got it Bank of Japan monetary policy announcement Gearing up for the upcoming Asian trading session, so focus could shift to the Yen pairs next.
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