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Dollar Tumbles as Yields Disregard CPI Numbers

USD

The dollar index which measures the greenback against a basket of major currencies fell to 89.95, erasing post inflation figures gains, weighed down by falling yields. The US May Consumer Price Index came in at 5.0%, its highest reading since the financial crisis in 2008. However, the bond market disregarded the high numbers and continued to price in that the current inflation numbers are transitory as per the Federal Reserve. The base effects and bottlenecks are driving inflation numbers higher, and these factors are transitory. The US 10-year yields crashed to 1.43%, the lowest since early March, the USDJPY eased to 109.30, and the GBPUSD soared to $1.4185.

Euro

The European Central Bank concluded its monetary policy meeting by keeping policy settings unchanged. The bank declared that the Pandemic Emergency Purchase Program will continue to run at a significantly higher pace, away from what the markets were looking for. As per Lagarde, the inflation forecasts remain well below target, but headline inflation is likely to pick up in the coming months. The bank raised inflation forecasts to 1.9% from 1.5% in 2021, and 1.5% from 1.2% in 2022, while also GDP forecasts were raised to 4.6% from 4.0% in 2021 and 4.7% from 4.1% in 2022. The EURUSD continued to trade in a tight range near $1.2180.

Equities

Major US stock index futures had a mixed performance as yields tanked following the CPI figures. The tech-heavy Nasdaq and the SPX500 cheered the falling yields, while the Dow Jones Industrial Average came under pressure, with the financial sector falling. Investors are looking forward to the Federal Reserve monetary policy meeting that is taking place next week to grasp more insight into the Fed's vision on the economic recovery. The Dow Jones Industrial Average futures eased to 34420, the S&P500 posted a record close of 4237, and the tech-heavy Nasdaq soared to 13983.

Metals

Precious metals prices rose significantly post the inflation readings. The rising inflation and falling US yields drove real yields lower, which supported the flow to metals as an inflationary hedge. The price of a gold ounce shot higher to $1903, the price of a silver ounce rallied to $28.28, and palladium recovered to $2785.

Oil

Oil prices continued their upside rally despite a sharp fall yesterday. Oil benchmarks came under pressure on headlines that the US Treasury is lifting sanctions on Iranian individuals. The market expected this to be a part of the nuclear deal negotiations. However, the US Treasury clarified later, and the prices went higher again. The West Texas Intermediate crude July contract rallied to $70.43, and the Brent blend August delivery rose to $72.66.

Major Economic Events

GMT Country Event Expectation Previous

14:00

US

 Michigan Consumer Sentiment (Jun) 

84.0

82.9

14:00

US

 Michigan Inflation Expectations (Jun) 

-

4.6%

 

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