- The Pound Sterling slumps to near 1.2820 against the US Dollar (USD) in Wednesday’s European trading hours. The GBP/USD pair drops as the British currency weakens after the release of the UK’s soft inflation report. Meanwhile, the near-term outlook of the US Dollar is also uncertain ahead of the US CPI data for July, which will be published at 12:30 GMT.
- The US Dollar index (DXY), which tracks the Greenback’s value against six major currencies, edges higher to near 102.67 in Wednesday’s European session after correcting to a fresh weekly low at 102.55 on Tuesday.
- US annual headline and core inflation is expected to have decelerated by one-tenth to 2.9% and 3.2%, respectively, with monthly figures growing by 0.2%. The data inflation will significantly influence market expectations for Fed interest-rate cuts for the remainder of the year.
- The US Dollar recorded a sharp sell-off on Tuesday after a mostly soft Producer Price Index (PPI) report for July increased market expectations for the Federal Reserve (Fed) to start reducing interest rates more aggressively.
- According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that traders see a 54.5% chance that interest rates will be reduced by 50 basis points (bps) in September. The likelihood of a 50 bps rate reduction has slightly increased after the PPI report release, but is still significantly down from the 69% recorded a week ago.
- The PPI report showed that headline producer inflation came in at 2.2%, lower than estimates of 2.3% and June’s reading of 2.7%. In the same period, the core PPI grew at a slower pace of 2.4% from expectations of 2.7% and the former release of 3%. A sharp decline in the pricing power of owners at factory gates boosted confidence of investors that inflation is on track to return to the desired rate of 2%.
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