- US inflation was unchanged in May after a 0.3% gain in the previous month.
- The likelihood of a Fed cut in September rose from 65% to 67%.
- Economists expect the US economy to add 189,000 jobs in June.
Currency Futures edged higher on Friday as US inflation eased in May, increasing the odds of a Fed rate cut in September. Still, most currencies ended the month lower amid economic, policy, and political changes.
US inflation (Source: Bureau of Economic Analysis)
Notably, the US released the core PCE report, a very significant inflation measure for the Fed. The report revealed that inflation was unchanged after a 0.3% gain in the previous month. At the same time, the annual figure eased from 2.7% to 2.6%, opening the door to Fed rate cuts.
The figures rekindled hopes for a cut in September as it confirmed the recent CPI and PPI numbers. After the report, the likelihood of a cut in September rose from 65% to 67%.
However, although market participants expect two cuts this year, the Fed has forecasted only one. Policymakers have maintained caution as they watch incoming data. Notably, the labor market, which has remained robust, has kept the central bank from assuming a more dovish tone. Therefore, all eyes are on the nonfarm payrolls report due this Friday.
Economists expect the economy to add 189,000 jobs in June, smaller than the previous 272,000. Meanwhile, the unemployment rate might hold at 4.0%. Weakness in the labor market could be the biggest catalyst for a rate cut in the US. Policymakers have been waiting for a drop in demand in the labor sector, which has remained resilient. Therefore, a smaller-than-expected number of jobs could bolster expectations for a cut in September.
Meanwhile, although the euro rose on Friday, it lost over 1% of its value in June. This decline came due to political uncertainty that started after French President Emanuel Macron announced a snap election.
After the first round of elections on Sunday, it was clear that the far-right National Rally party was in the lead. However, they won by a smaller margin than expected, which comforted markets. A big win by this party would increase the chances of a financial crisis due to massive spending.
The yen lost 1.9% of its value in June due to the rate differential between Japan and the US.
