US CPI numbers came in lower than expected, with year-on-year CPI at 3.3% vs 3.4%, and core CPI down to 3.4% in May from 3.6% in April. Markets are now pricing in two rate cuts by the Fed this year, and we saw a broad sell-off on USD as a result. GBPUSD climbed towards the highs seen in March this year, and EURUSD recovered the losses seen since last week's job numbers, and the fallout following the snap election being called in France.
However, the USD weakness that we saw in the afternoon did not last following some surprising hawkish elements in last night's Fed meeting, and the dot plot. The Fed now forecast only 1 rate cut this year, down from 3 forecasted in March, with 4 Fed members seeing now cuts (up from 2 previously), 7 seeing 1 cut, and 8 seeing 2 cuts. Commenting on yesterday afternoons CPI number, Fed Powell said it's a step in the right direction but is only one reading. As a result, we saw the greenback recover most of the lost ground from the CPI number.
*Daily move - against G10 rates at 7:30am, 13.06.24
** Indicative rates - interbank rates at 7:30am, 13.06.24
Another set of inflation numbers today, with the PPI numbers from the US. A weaker number could well see GBPUSD and EURUSD have another attempt at yesterday's high, but in light of Fed speak last night and subsequent price action, any gains will be short lived. We still need to remember that the EUR will likely be under pressure due to the political uncertainty in France, and next week's UK CPI number and BoE meeting is likely to be a risk factor for markets wanting to push GBP much higher.
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