Dollar and yen plummet due to an unexpected decline in US CPI: expectations for the Fed to cut interest rates increase
The dollar and yen plummeted in the New York exchange market. The reason behind this is that the US Consumer Price Index (CPI) for June, which was announced on the same day, fell short of expectations, and expectations for interest rate cuts from the Fed (US Federal Reserve) increased. We will analyze in detail the details of the sharp decline in the dollar and yen, the factors, and future prospects.
✔️ US CPI details
The announcement of the US CPI in June brought a big surprise to the market. Composite Index -0.1% compared to previous month (forecast +0.2%) Core Index (excluding food and energy) +0.1% compared to previous month (forecast +0.3%) Supercore (service price excluding housing costs and energy) -0.05% compared to the previous month (2 consecutive months of decline) The decline in gasoline prices contributed greatly to the decline in the comprehensive index, and the continuous decline in the supercore has been a phenomenon since last fall. This raised the possibility that the increase in inflation in the first quarter was temporary.
✔️ Market Reaction
The decline in CPI rapidly raised expectations for the Fed to cut interest rates. In the short-term financial market, interest rate cuts in September have been completely factored in, and the possibility of 3 interest rate cuts has also emerged from expectations of 2 interest rate cuts by the end of the year. Due to this expectation, US bond yields declined sharply, and dollars were sold. (*Technical analysis via live streaming)
✔️ The dollar and yen plummeted
The dollar yen before the CPI was announced was around 161.50 yen, but after the announcement, it plummeted to around 157.45 yen at one point. (*Technical analysis with LIVE distribution) A sharp drop of 400 points or more in a short period of time is extremely unusual, and it is thought that the reason was that the market was overheated and there were a large number of close sales. Also, in some reports, information was circulated that Japan's Ministry of Finance carried out market intervention. Treasurer Kanda declined to comment on the presence or absence of intervention, but there is no denying the possibility of intervention at this timing.
✔️ Future Highlights [Views on Education 💡]
In order to determine future trends in dollars and yen, it is necessary to pay attention to the following points.
1. Producer Price Index (PPI) There is a possibility that PPI to be announced will further reveal inflation trends.
2. PCE deflator The PCE deflator to be announced on the 26th is an inflation indicator that the Fed is watching closely, and how close it is to the 2% target is important.
3. FOMC meeting At the FOMC meeting on 7/30 and 31, the Fed's policy decisions based on these inflation indicators are attracting attention. If interest rate cuts are decided, there is a possibility that further movements of the dollar and yen will be affected.
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