[b]Date: 12th June 2025.[/b]
[b]Lower US Inflation Pressures The Dollar Amongst Other Developments![/b]
The US Dollar falls to its lowest price since April 22nd due to US inflation reading lower than previous expectations. The US Dollar Index fell a total of 0.35% on Wednesday and today’s price gap saw the index open a further 0.15% lower. The lower inflation data is applying renewed pressure on the currency which stands as the worst performing of the month. The best-performing currency of the past 24 hours is the Japanese Yen.
USDJPY - Lower Inflation Data Prompts Bearish Bias
The Consumer Price Index and Core figure (excluding food and energy) for May rose 0.1% lower than previous expectations. As a result, the US inflation rate rose from 2.3% to 2.4%, instead of 2.5% and the core inflation rate stayed the same (2.8%). The lower inflation rate is welcomed by consumers and even shareholders, however, the reading is negative for the US Dollar.
The US Dollar quickly fell in value without witnessing any noticeable retracements or attempts to regain bullish momentum. This is largely due to a higher possibility of cuts, however, the Federal Reserve is sticking to its dovish rhetoric. According to the Chicago Exchange, there was a 14% chance of a rate cut in July before the CPI announcement and a 19% chance after the announcement.
Therefore, the possibility of rate cuts remains low for the foreseeable future. Therefore, why has the US Dollar taken such a large hit for the weaker inflation data?
Additionally Pressure on The US Dollar!
The main price driver for the downward trend is, without a doubt, the weaker inflation data. However, other factors are also contributing to the bearishness of the US Dollar. One of these factors is the rioting which originally occurred in Los Angeles, which is now spreading to other regions including Chicago. These do not have a direct effect on the economy but can dampen economic sentiment and activity if this continues for a prolonged period.
A key factor is also the Treasury which sold $39 billion in 10-year bonds at a higher-than-expected value, indicating strong investor demand despite various market concerns. Due to the higher demand the bond yields fell from 4.5000 to 4.4030. The lower bond yields are known to be negative for the US Dollar but simultaneously find investors relieved.
Another factor which is yet to take centre stage is the possibility of Israel, a key ally of the US, striking Iran. According to reports, the US is advising various officials and offices in the region, particularly Iraq, to evacuate. Israel is reportedly considering a unilateral strike on Iran as talks between Washington and Tehran near a preliminary agreement on uranium enrichment. Due to this Oil prices rose close to a 10-week high, but this development is yet to become a serious concern.
USDJPY - The Japanese Yen Is the Best Performing Currency of Thursday!
The Japanese Yen is the best-performing currency of the day followed by Investors, the Swiss Franc and the Euro. These 3 currencies have been the main beneficiaries of the Dollar’s decline in 2025.
The market continues to focus on the further actions of the Bank of Japan. Analysts agree that at the next meeting, officials will leave the interest rate unchanged but may continue hiking thereafter. Commenting on the current situation, the head of the regulator notes the uncertainty in global trade, which hinders the ‘hawkish’ cycle due to the risks of accelerating inflation.
USDJPY 30-Minute Charts
The USDJPY is trading 0.40% lower during Thursday’s Asian session and trading below the 200-period SMA on the 5-minute chart. However, currently, the exchange rate retraces slightly higher as the EU session starts. If the price falls back below 143.770, sell signals are likely to again materialize.
Key Takeaway Points:
The US Dollar falls to its lowest since April 22 due to lower-than-expected inflation, with the Dollar Index dropping 0.35%.
May CPI rose 0.1% less than expected, causing inflation to rise to 2.4%, weakening the Dollar.
Despite lower inflation, the Fed's dovish stance keeps rate cut expectations low.
Other factors pressuring the USD include lower bond yields, domestic unrest, and rising oil prices amid geopolitical tensions.
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[b]Michalis Efthymiou
HFMarkets[/b]
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