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U.S. dollar, bond yields fall on falling inflation, expectations of Fed rate cuts
(MENAFN) The dollar and U.S. bond yields experienced a slight decline following the release of U.S. price data indicating a modest increase in inflation, which fell below the level that might prompt the Federal Reserve to reconsider easing monetary policy in the coming months. According to the Commerce Department, the personal consumption expenditures (PCE) price index rose by 0.1 percent in June, matching expectations after remaining unchanged in May. This data has paved the way for the Federal Reserve to potentially begin cutting interest rates in September.
On a year-over-year basis, the PCE price index increased by 2.5 percent, down from 2.6 percent in May, aligning with economists' forecasts. The PCE is a critical measure of inflation utilized by the Federal Reserve in formulating monetary policy. The reduction in inflationary pressures could bolster officials' confidence during their upcoming meeting, as it indicates progress towards the Fed's 2 percent inflation target.
In the currency markets, the yen has emerged as a significant performer this month, reaching a three-month high of 151.945 against the dollar after starting the month at a 38-year low of 161.96 to the dollar. This surge is attributed to suspected interventions by the Bank of Japan and expectations of tighter monetary policy at its forthcoming meeting, which has curbed speculative activity. Despite this, the dollar rose by 0.23 percent against the yen to 154.29 yen, while the euro increased by 0.12 percent to USD1.0857. The dollar index, which tracks the greenback against six major currencies, remained relatively stable at 104.33 after a slight increase of 0.08 percent before the data release. The pound also saw a modest rise of 0.12 percent to USD1.2866.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note fell by 3.1 basis points, while the yield on the two-year note, typically sensitive to interest rate expectations, also dropped by 3.1 basis points following the report.
The Federal Open Market Committee (FOMC) is scheduled to meet on July 30 and 31, coinciding with the Bank of Japan's meeting. While the FOMC is expected to keep borrowing costs unchanged, traders continue to anticipate a rate cut by the Fed in its September meeting.
On a year-over-year basis, the PCE price index increased by 2.5 percent, down from 2.6 percent in May, aligning with economists' forecasts. The PCE is a critical measure of inflation utilized by the Federal Reserve in formulating monetary policy. The reduction in inflationary pressures could bolster officials' confidence during their upcoming meeting, as it indicates progress towards the Fed's 2 percent inflation target.
In the currency markets, the yen has emerged as a significant performer this month, reaching a three-month high of 151.945 against the dollar after starting the month at a 38-year low of 161.96 to the dollar. This surge is attributed to suspected interventions by the Bank of Japan and expectations of tighter monetary policy at its forthcoming meeting, which has curbed speculative activity. Despite this, the dollar rose by 0.23 percent against the yen to 154.29 yen, while the euro increased by 0.12 percent to USD1.0857. The dollar index, which tracks the greenback against six major currencies, remained relatively stable at 104.33 after a slight increase of 0.08 percent before the data release. The pound also saw a modest rise of 0.12 percent to USD1.2866.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note fell by 3.1 basis points, while the yield on the two-year note, typically sensitive to interest rate expectations, also dropped by 3.1 basis points following the report.
The Federal Open Market Committee (FOMC) is scheduled to meet on July 30 and 31, coinciding with the Bank of Japan's meeting. While the FOMC is expected to keep borrowing costs unchanged, traders continue to anticipate a rate cut by the Fed in its September meeting.
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