- Consumer inflation in the US accelerated from 2.4% to 2.7%.
- US retail sales increased by 0.6%, compared to estimates of a 0.1% increase.
- Japan’s ruling party lost the majority of seats in the Upper House.
Currency futures gained on Monday as the dollar paused last week’s rally, with market participants weighing the outlook for Fed rate cuts. Even the yen gained after Sunday’s election, which led to a loss of majority seats in the Upper House for the ruling party.
Last week, most currency futures eased as the dollar gained. Data released on Tuesday revealed that consumer inflation in the US accelerated from 2.4% to 2.7%, beating estimates of 2.6%. Meanwhile, the annual figure met expectations, accelerating from 0.1% to 0.3%.
The report confirmed some of the Fed’s fears that Trump’s tariffs are boosting price pressures in the economy. Therefore, they might continue delaying rate cuts. If Trump continues to impose higher tariffs, the impact on inflation may be more significant, causing greater concern for policymakers.
At the same time, another report revealed that US retail sales increased by 0.6%, compared to estimates of a 0.1% increase. The core figure was also stronger than expected, indicating robust consumer spending in June. This eased worries of a rapid economic slowdown caused by Trump’s tariffs.
The overall outcome at the end of the week was a decline in Fed rate cut expectations. The likelihood of a September rate cut eased to around 54%, boosting the US dollar. However, the currency pulled back on Friday after Fed’s Christopher Waller said that he favors a rate cut in July because tariffs will have a limited impact on inflation.
Meanwhile, traders also focused on data from the UK. The pound was among the few currencies that gained against the dollar last week. Inflation figures revealed that CPI increased by 3.6%, hotter than the forecast. At the same time, employment figures revealed slower wage growth. However, it was not as bad as feared. As a result, Goldman Sachs analysts downgraded their forecast of BoE rate cuts to one more this year. Initially, they had expected two.
USD/JPY (Source: Bloomberg)
Meanwhile, the yen was fragile last week as markets awaited an election in Japan. Results on Sunday revealed that the ruling party lost the majority of seats in the Upper House. This means policy and tariff uncertainty. However, the yen remained mostly resilient as the move was already priced in.
