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Peter Davis

An writer at FOMOdrive

  • Jun 30, 2023
  • 2 min read

The US dollar collapsed amid weak inflation data

100 US dollar bill with piles of coins in front

On Friday, US macroeconomic data was released, causing the dollar to drop.

The Federal Reserve's primary measure of inflation was worse than anticipated.

After reaching a 2.5-week high of 103.5, the dollar index dropped.

On Friday, the Bureau of Economic Analysis (BEA), the economic statistics agency of the US Department of Commerce, reported that the Personal Consumption Expenditure Price Index (PCE Price Index) increased by 0.1% month-over-month in May, following a 0.4% rise in April.

It was anticipated that the growth would be more significant - 0.5% month-over-month. Year-over-year, the index increased by 3.8%, while predictions were for an increase of 4.6%.

The Core PCE Price Index, the Federal Reserve's primary inflation indicator, increased 0.3% month-over-month in May, as predicted. Nevertheless, the yearly rate dropped to 4.6% in May from 4.7% in April, contrary to expectations of no change.

TD Securities has reported that disinflation in the US is strong enough for the Federal Reserve to not increase rates in July, thus concluding the tightening cycle. This usually has a negative effect on the US dollar in the initial months, with a decrease of approximately 2%.

The market is still expecting the Federal Reserve to increase the rate at the upcoming meeting, despite the probability of a 25 basis point hike at the July meeting dropping from 89.3% to 86.8% in the last 24 hours.

Wells Fargo predicts that EUR/USD will reach 1.15 by the end of 2024, due to the expectation of a moderate economic growth in the Eurozone and a much slower rate of ECB rate cuts compared to the Fed in 2024.

It is predicted by Wells Fargo that the Japanese yen will become stronger in the coming year. It is estimated that the USD/JPY exchange rate could fall to 133 by the end of 2024.

Credit Suisse predicts that GBP/USD may attempt to reach the 1.30 level. However, the main risk is a potential sudden freeze or collapse in the UK asset markets.

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