U.S. Dollar retreats as inflation declines, Iran focus continues
The U.S. Dollar is trading in mixed, tight ranges, hitting the brakes after a steep decline during yesterday’s session that marked its worst daily performance since July 2.
Indeed, inflationary pressures seem to have eased following June Consumer Price Index figures that revealed a larger-than-expected contraction of (-0.4%) vs. (-0.1%). In turn, this lowered the odds of a hike at the July 29th Fed meeting from 40.0% to just 17.0%. There is still about a 50.0% chance of an increase in borrowing costs by September, but many traders have started betting that, if not by then, officials may not take any action at all for the remainder of 2026. It seems like a pause now counts as a cut, with stock exchanges also welcoming the data and the potential for rates to stay unchanged.
With consumers catching a break in price growth after the first decline in six years, around the onset of a devastating pandemic, investors are taking advantage as well, with a bit of a revival for tech shares despite warnings that spending on artificial intelligence may be overdone. On the geopolitical front, the White House dropped its demand for a 20.0% collection fee on ships after a blockade was reinstated around the Strait of Hormuz. We shall see if we get some reprieve as strikes, as well as talks, continue in the background. The next few days will close out with data for Retail Sales, Housing, and Industrial Production.
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EUR
The Euro started slowing down after climbing against the Buck, following the surprising fall in U.S. prices. Data may point to deflation in America, but the eurozone is experiencing an unforeseen lack of productivity. Eurozone Industrial Production for May came in negative at (-0.2%) instead of expanding by 0.2%, as forecast. The annual average suffered as a result, coming down to (-1.2%) vs. 0.4%. We will get June CPI numbers on Friday, but support for the shared currency does not seem strong enough at the moment to keep it afloat.
GBP
The Pound Sterling has sustained a half-percent gain for the past two days and could experience major volatility tomorrow, as economic indicators play a big role. A plethora of May figures will come out tomorrow, including quarterly readings for Gross Domestic Product, Industrial Production, Manufacturing, and Construction. Currently, there are no expectations for the Bank of England to raise its benchmark rate of 3.75% at its July 30th meeting, but traders are betting on at least one hike by year-end. Solid data could up the ante.