- EUR/USD faces intense selling pressure and declines below the round-level support of 1.0700 as the US Dollar (US) strengthens. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, prints a fresh monthly high at 105.55.
- The US Dollar remains firm as the latest interest rate projections from Federal Reserve (Fed) policymakers indicate that there will be only one rate cut this year against the three cuts forecasted in March. Also, expectations for the core Personal Consumption Expenditure Price Index (PCE) reading, which is the Fed’s preferred inflation measure, were upwardly revised to 2.8% from 2.6%.
- In Wednesday’s press conference, Fed Chair Jerome Powell acknowledged that soft Consumer Price Index (CPI) report for May is encouraging and indicated that inflation is heading in the right direction. However, to build confidence for rate cuts policymakers want to see inflation declining for months.
- Contrary to Fed’s communication of one rate cut for this year, market participants expect that there will be two. Investors’ expectations for the Fed lowering interest rates twice this year have strengthened due to the soft CPI and Producer Price Index (PPI) report for May.
- According to the CME FedWatch tool, 30-day Federal Funds futures pricing data show that the Fed will start reducing interest rates from the September meeting and there will be one more cut in either November or December. The probability of the Fed cutting rates from September has increased to 65% from 50.5% a week ago.
- The US PPI report showed on Thursday that headline producer inflation unexpectedly contracted by 0.2% on month, while the core reading – which strips off volatile food and energy prices – was unchanged. Annually, headline and core PPI decelerated to 2.2% and 2.3%, respectively.
- In Friday’s session, investors will focus on the preliminary Michigan Consumer Sentiment Index, which gauges public sentiment towards personal finances, business conditions and buying conditions. The index is expected to have improved to 72.0 from the prior reading of 69.1.
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