NASDAQ And SP500 Test New Highs As Inflation Rate Drops To 4%

Key Insights

• Inflation Rate decreased from 4.9% in April to 4% in May. 
• Treasury yields moved lower, although traders expect a 25 bps rate hike at the Fed meeting in July. 
• U.S. dollar tested multi-week lows as traders prepared for a less hawkish Fed.

On June 13, U.S. released inflation reports for May. Inflation Rate declined from 4.9% in April to 4% in May, compared to analyst consensus of 4.1%. Core Inflation Rate decreased from 5.5% to 5.3%, in line with the analyst consensus.

FedWatch Tool indicates that there is a 94.2% probability that the Fed will leave the federal funds rate unchanged tomorrow. Traders expect that the Fed will raise rates by 25 bps at the next meeting in July.

While the markets expect that the Fed will be forced to raise rates in July, the U.S. dollar has found itself under pressure after the release of inflation reports. Currently, the U.S. Dollar Index is trying to settle below the support at 103.20. In case this attempt is successful, it will head towards the 103 level.

Treasury yields are moving lower as bond traders prepare for a less hawkish Fed. It looks that the potential rate hike in July has been already priced in by the bond markets.

Weaker dollar and lower Treasury yields provided some support to gold markets, although gold remains stuck below the resistance level at $1965.

Meanwhile, the rally in the equity markets continues. Traders are not worried about Core Inflation Rate, which remains above the 5% level, and focus on the pullback in Treasury yields. SP500 tested new highs near 4365, while NASDAQ moved closer to the 15,000 level.

For a look at all of today’s economic events, check out our economic calendar.