U.S. consumer prices fell unexpectedly in June, The consumer price index fell 0.1% on a monthly basis. This represents the first decline since May 2020 and is in contrast to the expected 0.1% increase. It also represents a shift from the flat reading in May.
When we remove volatile materials such as food and energy, The core CPI also fell 0.1%.while it came in below market expectations of a 0.2% gain in May.
This slowdown in prices helped to bring down annual inflation slightly. The headline CPI fell from 3.3% to 3.0%, its lowest level since June 2023. Similarly, the core CPI slowed from 3.4% to 3.3%, marking the slowest increase since April 2021.
The report detailed that: Energy costs have decreased. U.S. consumer prices fell another 2.0% on a monthly basis, with sub-indices such as energy staples, gasoline and fuel oil falling faster than the previous month.
Shelter costs have also decreased.up just 0.2% after posting a monthly gain of 0.4% since February.
Last but not least, Car prices have dropped. With new car prices falling 0.2% after falling 0.5% in May, while used car and truck prices fell 1.5% after rising 0.6% in May.
Market reaction
US Dollar vs Major Currencies: 5 minutes
US Dollar Overlay Against Major Currencies Chart by TradingView
The odds of a Fed rate cut by September had already reached 70% after Powell spoke of easing labor market pressures earlier this week.
These odds rose to 84.6% after the US inflation report was released. Not only that, but traders are now taking into account Multiple price reductions In 2024. CME FedWatch Tool It puts the odds of a second rate cut in November at 50.3% and a third cut in December at 43.9%.
The US dollar, which had been trading in ranges since the start of the European session, fell sharply after broadly weak CPI reports.
But the rally after the report was the lowest level of the day for the dollar. Dollar buyers quickly stepped in, causing declines across the board. One possible reason is that weakness in U.S. stocks may have inspired risk aversion and boosted demand for the dollar. Talk of Japanese government intervention also increased, encouraging dollar buying.
The US dollar ended the day well above its post-CPI lows, but remained in the red against most major currencies. The greenback saw heavy losses against the Japanese yen, the British pound and the euro, but ended the day positive against the Canadian dollar.
