Key points:
The US dollar (Symbol: USDX) experienced a notable retreat across the board after the latest inflation data indicated easing price pressures in the US economy. The consumer price index (CPI) showed a 3% annualized growth in June, down from 3.3% in May.
This softer-than-expected inflation data has led traders to speculate on potential interest rate cuts by the Federal Reserve, subsequently weakening the value of the US dollar.
In response to the CPI report, the dollar index, which measures the greenback’s strength against a basket of six major currencies, dropped 0.9% on Thursday. It continued to face pressure on Friday, floating around 104.40, down from a high of 105.00 earlier in the week.
Picture: The US dollar index declined after the CPI report, as observed on the VT Markets app.
The euro and British pound were among the primary beneficiaries of the decline in US dollar. The euro briefly surpassed the $1.09 mark, climbing from levels around $1.08, while the British pound eyed a significant psychological level at $1.30.
The situation with the Japanese yen was more complex. Immediately after the inflation data release, the USDJPY pair saw a dramatic drop, losing over 2.5% within minutes. This sudden movement fueled speculation of potential intervention by Japanese authorities, although no official confirmation has been received. The exchange rate fell from a daily high of ¥161.70 to ¥157.30.
The cooling inflation data suggests a possible shift in the monetary policy of the Federal Reserve, potentially leading to rate cuts.
This could further weaken the dollar while bolstering major forex rivals. Traders should closely monitor upcoming economic reports and Fed communications for more clues on the future direction of US monetary policy, while keeping to a risk management plan in navigating the markets.
Official partners:
