The US Dollar faced significant losses against its major counterparts on Wednesday as investors reacted to disappointing inflation data for June, heightening concerns about inflation risk. The US Dollar Index (DXY) plummeted over 1% in a single day, reaching its lowest level in 15 months. While the DXY remains under modest bearish pressure early Thursday, US stock index futures are trading in positive territory. The European economic docket features Industrial Production data for May, followed by the weekly Initial Jobless Claims and Producer Price Index (PPI) data from the US later in the day.
The Consumer Price Index (CPI) in the US showed a 3% year-on-year increase in June, following a 4% rise in May. On a monthly basis, both the CPI and Core CPI increased by 0.2%. Despite Federal Reserve (Fed) policymakers Neel Kashkari and Thomas Barkin highlighting that inflation risk remains too high, these comments failed to boost demand for the US Dollar. Following the CPI data, the probability of a 25 basis points rate hike in December dropped below 20% from 33%, as indicated by the CME Group FedWatch Tool.
US Dollar Index Hits 15-Month Low on Soft Inflation-Proof Investments
In Asian trading hours, China released data showing a widening trade surplus of $70.62 billion in June, up from $65.81 billion in May. However, both exports and imports declined on a yearly basis, with a decrease of 12.4% and 6.8%, respectively.
EUR/USD gained bullish momentum, breaking above the key level of 1.1100. Currently, the pair is trading at its highest level since March 2022, hovering around 1.1150.
GBP/USD continued its rally, surpassing the 1.3000 level for the first time in over 15 months early Thursday. The UK’s Office for National Statistics reported a 0.6% monthly decline in Industrial Production for May, while real Gross Domestic Product contracted by 0.1%.
Bank of Canada Raises Policy Rate as Canadian Economy Shows Strength
As expected, the Bank of Canada (BoC) raised its policy rate by 25 basis points to 5% following the July policy meeting. The BoC noted that the Canadian economy has been stronger than anticipated, with increased momentum in demand. However, concerns remain about the progress towards the 2% cost-push inflation target. USD/CAD closed deep in negative territory on Wednesday and continues to edge lower towards 1.3150.
USD/JPY Drops to Three-Month Low, Consolidates Around 138.50
USD/JPY experienced a significant drop of nearly 200 pips on Wednesday, reaching its weakest level in over three months, near 138.00 during the Asian session on Thursday. The pair is currently in a consolidation phase around 138.50 in the European morning.
Gold Price Climbs Above $1,960 on Weaker US Dollar and Bond Yields
Gold prices surged higher, breaking above the $1,960 level. In addition to the broad-based weakness of the US Dollar, the 3% decline in the 10-year US Treasury bond yield after the release of the US inflation data provided further support to XAU/USD.
Bitcoin and Ethereum Fail to Capitalize on Possible Inflation Risk
Bitcoin failed to capitalize on the improving risk sentiment and closed in negative territory on Wednesday. At the time of writing, BTC/USD is moving sideways below the $30,500 mark. Ethereum also struggled to make a decisive move and closed virtually unchanged on Wednesday, with ETH/USD maintaining a relatively quiet level of around $1,900 in the European session.
