Fed: Inflation data suggests rate hike cycle is coming to an end, adding pressure on dollar – UBS

Slowing inflation adds to headwinds for the US dollar, UBS economists report.

Inflation continued to ease

US consumer price inflation slowed markedly in June, reigniting hopes that the Fed could soon end its fastest rate-raising cycle since the 1980s. Annual Headline Inflation for the Month was 3%, down from 4% the previous month and the smallest increase since March 2021.

Core inflation, which excludes volatile food and energy prices, rose to 4.8%, slowing from 5.3% in May and coming in below economists’ consensus forecasts. There were even promising signs that service sector inflation, which has been a major concern of policymakers, is cooling off. Services excluding housing and energy slowed to a 4% annual advance, also the smallest increase since late 2021.

Despite the good news on inflation, our view is that the Fed will be reluctant to declare victory just yet. But the data does support our baseline assumption that the end of the rallies is in sight, which will add to the pressure on the US dollar.

Source: Fx Street

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