• AUD/USD
    SELL
    -
    BUY
    -
    CHG
    -
  • EUR/GBP
    SELL
    -
    BUY
    -
    CHG
    -
  • EUR/JPY
    SELL
    -
    BUY
    -
    CHG
    -
  • EUR/USD
    SELL
    -
    BUY
    -
    CHG
    -
  • GBP/USD
    SELL
    -
    BUY
    -
    CHG
    -
  • USD/CAD
    SELL
    -
    BUY
    -
    CHG
    -
  • USD/CHF
    SELL
    -
    BUY
    -
    CHG
    -
  • USD/JPY
    SELL
    -
    BUY
    -
    CHG
    -

Traders buying everything but US dollar as inflation cools

Amid cooling inflation, traders are redirecting attention and capital away from the US dollar, sparking rises in stocks, small-cap indices, and commodities like gold, as expectations for interest rate cuts grow.

red price graph with downward arrow
Source: Shutterstock
Picture of Frank Kaberna
Frank Kaberna
Director of Strategy, Chicago

Key points

  • CPI inflation fell 0.1% more than expected in June
  • Major stock indices responded immediately, first appreciating before pulling back
  • The Russell 2000 index saw sustained gains of more than 2% midmorning
  • Bond prices rose as well with the expectation of lower interest rates
  • Gold prices rallied through $2,400

CPI inflation rates fell 0.1% more than expected in June

US headline inflation rates in June were slightly lower than anticipated, with 3.0% reported versus an expected 3.1%, and core inflation rates at 3.3% compared to the forecasted 3.4%. This variance may suggest a lasting decrease in inflation pressures, potentially providing the Fed with the data needed to start reducing interest rates.

Stocks moved higher following weak inflation rate

Following the announcement of lower-than-expected inflation rates, major stock indices like the S&P 500 and Nasdaq initially experienced gains. However, these gains were partially reversed later in the day, showcasing the market's volatile response to economic indicators.

Small-cap stocks up 2% following lower inflation, interest rates

Small-cap stocks, notably those in the Russell 2000 index, typically benefit from lower interest rates. In the hours following the release of softer inflation rates, these stocks saw an approximate 2% increase, reflecting investor optimism about reduced borrowing costs and potentially expanded corporate profits.

Treasury bonds rally on potential rate cuts

The potential for earlier or deeper rate cuts by the Fed, suggested by lower inflation rates, prompted a rally in Treasury bonds. Because bond prices and interest rates move inversely, this uptick is a strategic reaction to expectations of changing monetary policy—possibly as soon as September.

Gold prices rally through $2,400

In the realm of commodities, gold futures surged over 1% this morning. This increase sent the precious metal's above $2,400 and back near all-time highs. This price action reflects heightened demand as gold is often seen as a safer investment amidst uncertainty in real returns of other assets.

How to trade US dollar

  1. Open an account to get started, or practice on a demo account
  2. Choose your forex trading platform
  3. 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. Our curated playlists can help you stay up to date on current markets and understanding key terms. 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.

Reviewed by:
Glen Frybarger
Senior Content Strategist, Chicago