Slower US Inflation Adds to Odds of Fed's Rate "Skip" in June

The latest financial market news reveals that US inflation has come in slightly lower than expected, reaching a two-year low. This development has consolidated predictions of a potential rate "skip" by the Federal Reserve (Fed) in its upcoming meeting. As a result, the Eurodollar has risen to a three-week high, indicating investor confidence.

The Big News

US inflation data takes the spotlight as the Consumer Price Index (CPI) reports a 4.0% annual change, slightly below the expected 4.1%. The core rate matches expectations at 5.3%, while the monthly CPI change is 0.1%, lower than the projected 0.2%. These figures represent the lowest inflation level since April 2021. In a parallel development, real hourly earnings turn positive at 0.2% compared to the previous -0.6%. Consequently, traders' expectations of the Fed maintaining steady rates soar to 92%, compared to 79% before the data release.

The euro strengthens against the US dollar, reaching a three-week high of $1.0825 due to the dollar's weakness. However, the pair retreats to $1.0794 ahead of the crucial Fed meeting, with investors closely monitoring levels at $1.07 and $1.09.

Gold faces a 0.78% decline despite a weaker dollar, as changing rate expectations prompt caution among market participants. Although gold initially reaches $1972/oz on Tuesday, it ultimately closes at $1943/oz. The support level of $1932/oz remains significant, while $1957/oz acts as a local top.

The US Department of Energy announces its plan to repurchase 12M bbl this year, aiming to replenish the Strategic Petroleum Reserve (SPR). Last week, the DOE sold 1.9M bbl from the SPR. In response to this news, WTI crude oil prices rise by nearly 3% on Tuesday, although they fall short of reaching the $70/bbl threshold. Potential further upsides could expose levels at $71.10 and $72.45/bbl, while regional support stands at $66.85/bbl.

The UK job market demonstrates unexpected resilience as the May claimant count falls by 13.6K, surpassing expectations of a 23.4K increase. Additionally, the April ILO unemployment rate remains steady at 3.8%, defying expectations of a 4.0% rise. Average hourly earnings for April show a 6.5% increase, outperforming the projected 6.1% rise. These positive indicators contribute to the pound's surge of 0.85%, with cable reaching a one-month high of $1.26 and nearing this year's peak of $1.2679. $1.2546 provides support above the round $1.25 swing.