Inflation Eases, Boosting Risk Appetite

Inflation slowdown and positive economic indicators sparked a surge in risk appetite across global markets. The US reported lower-than-expected inflation, while the Federal Reserve's Beige Book revealed increased economic activity in May. This led to a fall in the value of the dollar, setting the trend for other assets.

Key Factors for Today

• Slowing inflation data drives sentiment, with the Euro and Pound gaining strength.
• The Bank of Canada raises rates with a hawkish tone.
• Australian and New Zealand Dollars experience significant gains, while the Yen maintains its strength.
• Surprise increase in oil inventories does not impact prices.
• China's trade surplus shrinks, benefiting the USDCNY due to a weaker dollar.

Market Movers

• The US monthly Consumer Price Index (CPI) change for June came in at 0.2%, lower than the anticipated 0.3%. The annual rate was 3.0%, compared to the expected 3.1%.
• As predicted by most economists, the BOC raised rates by 25 basis points, citing concerns about inflation.
• Lower inflation contributed to a decline in the US Dollar, resulting in the Australian Dollar (AUD) and New Zealand Dollar (NZD) experiencing significant gains of around 1.60% each.
• Despite a surprise increase in oil inventories reported by the US Department of Energy (DOE), oil prices remained unaffected.

Economic Calendar

• UK GDP
• UK Industrial & Manufacturing Production
• EC Economic Forecasts
• ECB Monetary Policy Meeting Accounts
• US Producer Price Index (PPI)
• US Jobless Claims
• Speech by Fed's Waller
• Eurogroup Meeting
• EU-Japan Summit
• OPEC Monthly Report

The Big News

Inflation Slowdown Eases Pressure

June's CPI figures revealed a slowdown in inflation, both monthly and annually. The headline monthly CPI change of 0.2% fell short of the expected 0.3%, while the annual rate of 3.0% was slightly below the anticipated 3.1%. Core inflation also missed expectations, with the annual rate at 4.8%, down from the projected 5.0%. This downward trend in inflation provided relief to market participants, boosting risk appetite and encouraging investments in higher-yielding currencies.

Bank of Canada Raises Rates with a Hawkish Stance

As widely anticipated, the Bank of Canada announced a 25 basis points rate hike, highlighting concerns about inflationary pressures. The central bank also extended the timeline for inflation to return to its target of 2% by mid-2025. This hawkish move by the BOC sent a clear signal to the markets that it is committed to taming inflation and maintaining price stability. The Canadian Dollar reacted positively to the rate hike, strengthening against the US Dollar.

Currency Moves Reflect Changing Sentiment

Lower inflation in the US put pressure on the dollar, resulting in significant gains for the Australian and New Zealand Dollars. Despite a lack of positive domestic news, the AUD and NZD rose by approximately 1.60% each. Meanwhile, the Japanese Yen maintained its strength, marking a five-day winning streak against the dollar. These currency movements indicate a shift in market sentiment, driven by changing inflation dynamics and central bank actions.