June US CPI fell to 3.5% year-on-year, below expectations, reducing Fed rate hike bets and weighing on the USD.
The Euro rose against the US Dollar for a second day, supported by weaker-than-expected US inflation data. June’s Consumer Price Index slowed to 3.5% year-on-year, down from 4.2% in May and below the 3.8% consensus forecast. Monthly inflation contracted 0.4%, the sharpest decline in nearly six years.
The softer inflation print eased expectations for Federal Reserve rate hikes, with markets now pricing a 60% chance of a September hike, down from 75% before the data. Fed Chair Kevin Warsh’s hawkish congressional testimony failed to lift the USD, as investors focused on the inflation slowdown. Meanwhile, the Euro remained range-bound below 1.1480, with risk-off sentiment capping further gains.
European Central Bank Governor Martin Kocher noted no signs of second-round inflation effects from Middle East tensions but signaled readiness to act if needed. The conflict continues to add uncertainty to global markets.