Forex Today:  After US CPI, attention turns to the FOMC

After the release of US CPI data, market participants turned their attention to the FOMC meeting. Before the Fed's decision, New Zealand will report Q1 Current Account and the UK Industrial Production data. Later, before the monetary policy decision, more US inflation data is due with the Producer Price Index.

Here is what you need to know on Wednesday, June 14:

Wall Street cheered US inflation data as the Dow Jones gained 0.43% and the S&P 500 climbed 0.69%. Risk-on flows weighed on government bonds, causing them to decline and boosting yields, despite the inflation data. Asian and European markets also finished higher, supported by signs of stimulus from China.

The annual Consumer Price Index (CPI) rate dropped in the US to 4% in May, below the expected 4.1%, reaching the lowest level since March 2021. These numbers cemented expectations of a pause from the Federal Reserve on Wednesday. The statement, the economic projections, and Powell’s words will be watched closely for clarity about the next steps from the central bank. Before the decision, more inflation data is due with the Producer Price Index.

Analysts at Wells Fargo commented:

 In the more immediate future, today's data should lock in a pause at the June FOMC meeting, i.e. no rate hike. However, we expect Chair Powell's press conference and the latest Summary of Economic Projections to signal that one more rate hike is still in the cards.

US Treasury yields initially dropped following the CPI report but rebounded sharply. Similarly, yields in Europe also increased. The Japanese Yen reversed and suffered significant daily losses across the board. USD/JPY rose for the fourth consecutive day, climbing above 140.00. On Friday, the Bank of Japan will have its monetary policy meeting. 

EUR/USD reached weekly highs near 1.0820 but pulled back under 1.0800. It ended with gains, and the trend is up but faces resistance. The European Central Bank is expected to raise key rates by 25 basis points on Thursday.

The Pound outperformed on Tuesday following a better-than-expected UK employment report. Later today, BoE's Bailey said data show the labour market is "very tight". The UK will report Industrial Production and GDP data on Wednesday. GBP/USD posted the highest close in a month, above 1.2600, and is looking at May highs. EUR/GBP erased most of Monday's gains, falling to 0.8550.

The decision from the People's Bank of China to ease short-term policy rates helped commodity currencies only modestly. These currencies pulled back during the American session, despite risk appetite, amid a modest recovery of the US Dollar.

USD/CAD traded below the crucial support area of 1.3300, reaching the lowest since February, but rebounded to close the day at 1.3305/10. The pair remains under pressure.

NZD/USD consolidated above 0.6100; it peaked at 0.6176 but then pulled back under 0.6150. New Zealand will report Current Account data on Wednesday. 

AUD/USD rose for the fourth consecutive day but was rejected from above 0.6800, offering mixed signals. Australia will report employment data on Thursday.

Gold tumbled to the $1,940 area amid higher government bond yields; after the US CPI report, the yellow metal peaked at $1,971 before reversing. Silver lost 1.65%, ending at $23.65.

 

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