The US dollar fell amid inflation data

Data on US inflation has caused the dollar to drop.

Inflation has dropped to its lowest level in over two years.

Particular attention should be paid to the data prior to the start of the Federal Reserve meeting on Tuesday.

The dollar index dropped to near 103, its lowest level in three weeks.

On Tuesday, June 13, the US Department of Labor released a report indicating that the consumer price index (CPI) in the US had increased by 0.1% in May compared to April, which was lower than the expected rise of 0.2% month-on-month.

In May, consumer prices increased by 4% compared to the same month in the previous year, which was a 0.9% decrease from the 4.9% growth seen in April. This was lower than the anticipated 4.1% decline. The annual inflation rate has been the lowest since March 2021, which is over two years ago.

Inflation rose in May, largely due to the increase in housing prices, as well as the prices of used cars and trucks. Additionally, food prices added 0.2% after remaining unchanged for the past two months.

In May, the Core Consumer Price Index (Core CPI) - excluding food and energy prices - increased by 0.4%, as predicted. On a month-on-month basis, the annualized growth of Core CPI dropped by 0.2%, reaching 5.3% year-on-year, which was also in line with expectations.

A statement from the White House reported that inflation has been decreasing for 11 months in a row, with the annual rate now at its lowest since March 2021 and less than half of what it was in June 2020. This is in spite of the fact that unemployment remains at historic lows. The report indicates that the fight against inflation is making progress.

Commerzbank expects that the inflation situation in the US is improving, which will give the Fed a break from raising rates at their meeting on June 13-14. Despite this, underlying price pressures remain strong, as seen by the underlying high of 5.3%. The Fed is unlikely to raise rates on Wednesday, but they will not be cutting them in 2023 either.

According to MUFG Bank, the US dollar's upward momentum will need to be rekindled with an unexpected rise in the Federal Reserve's rate. Nevertheless, the decline should be slight as the Fed leaves the possibility of further rate hikes in July open.

The FxPro analyst team notes that, while U.S. core inflation could be a cause for concern for the Fed, taking into account the lag in monetary policy, the Fed may still give a signal that rates have reached their peak and that easing will follow a pause, the length of which will be determined by economic data.

Expectations that the rate will remain the same at the upcoming Fed meeting on Wednesday increased to 97.6% from 79.1% following the release of the inflation report.