Dollar moves lower after cooler CPI data. Yields move lower. Stocks higher

The US CPI data for the month of May came in softer than expected with the quarter CPI Ed 0.2% versus 0.3%. The headline CPI feminine 0.0% versus 0.1%.. The YoY for core was at 3.4% (the lowest level since April 2021). The headline came in at 3.3% vs 3.4% estimate (unchanged)

The market is now pricing in 50 basis points of rate cuts between now and the end of the year.

The initial reaction is for the US dollar to move lower as the market now look forward to the FOMC rate decision with a more dovish expectation.

• EURUSD is now trading at 1.0823 and looks toward the 200-hour moving average 1.08323. The price was trading at 1.0765 prior to the report.
• The USDJPY is back below the 200 hour MA at 156.44. The price was at 157.34 before the report.

Looking at the US debt market, yields are sharply lower:

• 2-year yield 4.711%, -4.2 basis points. The yield was at 4.836% prior to the report..
• 5-year yield 4.286%, -13.2 basis points. The yield was at 4.407% prior to the report.
• 10 year yield 4.292%, -10.9 basis points. The yield was 4.392% prior to the report
• 30-year yield 4.457%, -7.7 basis points. The yield was at 4.528% prior to the report

Looking at the US stocks,they are now implying solid gains after marginal gains just before the release:

• Dow Industrial Average futures are now implying a gain of 250 points
• S&P index futures are employing a gain of 42 points.
• NASDAQ futures are employing a gain of 184 points.

The pendulum swings as inflation concerns ease and hopes for cuts increase. Prior to the report, the debate on the dot plot was one or two cuts. That has shifted to the 2-cuts between now and the end of the year. The focus will now be how cautious will Powell be? Will he be more gung-ho on the “policy is restrictive and the Fed now has 2 CPI reports under it’s belt” or will he focus on the “more risks and it is too soon before the Fed cuts”

This article was written by Greg Michalowski at www.forexlive.com.