Lowest core inflation since 2021 raises rate cut odds, sinks US dollar
Data current as of 5/15/2024
Key points
Core CPI inflation lowered to 3.6% YoY
Month-over-month inflation softened to 0.3%
The month-over-month inflation rate came in softer than expected at 0.3%, injecting further confidence among investors that we are on a steady trajectory towards controlling inflation. This particular metric drew notable attention since it was the only one to deviate from expectations. It is worth noting that prices are still increasing month to month, but not at a pace that concerns investors.
Treasury yields dropped as attention turns to rate cuts
Yields on US treasuries dropped following the data release, with the 10-year Treasury yield falling below 4.4%. This fall to a month-long low underscores evolving market sentiments towards an accommodative monetary stance, with futures trading hinting at a high probability of rate cuts by year-end. This anticipation of rate cuts, fueled by the latest economic data, is precipitating adjustments in forex market perspectives, particularly expectations around the US dollar’s performance against major currencies.
Confidence in two rate cuts this year grows
Emerging from the recent inflation and other economic indicators, CME futures traders are now more confident about the Federal Reserve initiating rate cuts, possibly starting in September. The shift in expectations towards two 25 bps cuts by December reflects growing optimism around easing inflation and moderating employment figures, presenting significant implications for forex strategies as market participants recalibrate in response to evolving monetary policy outlooks and currency demand.
US dollar depreciated against major currencies
In the forex market, the US dollar depreciated substantially, notably against the Japanese yen and European counterparts. USD/JPY fell over 150 pips to trade below 155.00 intraday, while pairs like EUR/USD and GBP/USD climbed near 1.0900 and 1.2700, respectively. This price action is tied closely to speculation around future rate cuts and the broader anticipation of monetary policy adjustments in response to the latest economic data, impacting trading positions and strategies across major currency pairs.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
This information has been prepared by tastyfx, a trading name of tastyfx LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. tastyfx accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.