Yesterday, the highly anticipated US Consumer Price Index (CPI) was released, showing a slight decrease from the previous reading at +4.9% YoY. The recently highlighted core CPI also indicated a slowdown. This led to a reaction in the foreign exchange market with the US dollar being sold off, accompanied by a decline in US bond yields. As a result, market expectations for the upcoming June FOMC meeting are now more than 90% leaning towards a decision to keep interest rates unchanged. Although the timing of rate cuts will still depend on future data, the immediate outlook appears to have settled for now.
Today, the US Producer Price Index (PPI) will be announced. It is expected to show a slowdown in year-on-year growth for both the overall index and the core index, following the market trend influenced by the previous day’s CPI data.
Another issue that has gained attention is the US debt ceiling problem. Treasury Secretary Janet Yellen has repeatedly called for an early resolution. While this is an annual occurrence, any delay in resolving the issue related to the creditworthiness of US bonds could potentially lead to a broader sell-off of the US dollar. Flexibility from President Biden is being sought in this regard.
In the upcoming London market session, the Monetary Policy Committee (MPC) of the Bank of England will announce its monetary policy. The market consensus is currently leaning towards a 25 basis point rate hike. This particular meeting is known as the “Super Thursday” as it includes the release of minutes, quarterly monetary policy reports, and a press conference by Governor Bailey. The focus is expected to be on future inflation prospects. Market participants perceive that inflation pressures may persist longer than previously anticipated, leading to a prolonged period of rate hikes. It will also be important to monitor any potential divergence of votes among the MPC members regarding the policy decision, as has been observed in the past.
Regarding the USD, there was an expectation for a continued USD selling trend following yesterday’s CPI data. However, at the moment, there seems to be some buying pressure on the USD, and the overall flow remains unstable. It is anticipated that there may be further movement in the USD following the release of the US Producer Price Index (PPI).