On Wednesday, the US consumer price index indicated that inflation is decreasing, which bolstered expectations that interest rate cuts by the Federal Reserve are imminent. As a result, the dollar lost ground against its main competitors and assisted the euro in reaching an eight-month high.
The US CPI increased somewhat in July, and for the first time since early 2021, the annual inflation rate increased to less than 3%. These developments raised expectations for a rate cut next month, though it was probably not as aggressive as the markets had anticipated.
The report suggests that inflation is on a downward trend, which is consistent with the modest increase in producer prices in July. This should allow the Fed, which is increasingly concerned about a sharp slowdown, more room to concentrate on the labour market. The Fed reached its 2.8 percent PCE target for the end of the year, and today’s CPI is encouraging. According to State Street senior global macro strategist Marvin Loh, it is in favour of a cut in September, which might be more gradual than the market had anticipated during the previous week.
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