US Dollar (DXY) Index News: Lower as Fed Rate Cut Bets Rise Following CPI Miss

James Hyerczyk
Published: Jun 12, 2024, 15:44 GMT+00:00

Key Points:

  • The U.S. dollar falls as CPI data misses expectations, signaling potential Fed rate cuts.
  • Treasury yields decline after CPI data shows no monthly gain in May.
  • Market speculates on Fed's next move with increased odds of rate cuts by year-end.
US Dollar Index (DXY)

Dollar Falls on Weak Inflation Data

The U.S. dollar declined on Wednesday following the release of weaker-than-expected consumer price index (CPI) data for May, bolstering market speculation that the Federal Reserve may begin cutting interest rates as early as September. The headline inflation rate remained flat month-over-month, missing the anticipated 0.1% increase. Core CPI, which excludes food and energy prices, rose by 0.2%, below the forecasted 0.3%.

At 15:42 GMT, the U.S. Dollar Index is trading 104.292, down 0.964 or -0.92%.

Dollar Index and Currency Movements

The dollar index (DXY) dropped 0.63% to 104.60. In response, the euro appreciated by 0.67%, reaching $1.081, while the dollar weakened by 0.34% against the Japanese yen, settling at 156.53 yen. These movements reflect the market’s reaction to the subdued inflation figures and the resulting adjustments in interest rate expectations.

Impact on Treasury Yields

U.S. Treasury yields also declined significantly. The 10-year Treasury yield fell 14 basis points to 4.267%, and the 2-year yield decreased by 15 basis points to 4.682%. The softer inflation data influenced these yields, reinforcing the view that the Fed may soon ease monetary policy.

Federal Reserve Policy Outlook

The CPI report precedes the Federal Reserve’s June policy statement, scheduled for release at 18:00 GMT. The Fed is expected to maintain current interest rates, but traders are focused on the central bank’s guidance and Chair Jerome Powell’s post-meeting remarks for indications of future policy direction. Fed fund futures now suggest a 70% probability of a rate cut in September, up from even odds prior to the CPI release. Additionally, there is a 74% chance of a second cut by year-end.

Market Forecast

Given the recent inflation data and market sentiment, the short-term outlook for the dollar appears bearish. If the Federal Reserve signals a dovish stance in its upcoming announcements, the dollar could face further pressure. Traders should monitor the Fed’s economic projections and statements closely for cues on the timing and extent of potential rate cuts.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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