Slowing inflation threatens the strength of the US dollar and sends it toward its lowest levels

sharp decline in the US dollar, which reached its lowest levels at 100.50 points, under the influence of inflation data that caused strong market movements, more US inflation data is scheduled to be released today, Thursday. The markets are awaiting the release of the Producer Price Index (PPI) and weekly unemployment rates in the United States.

Data from the United States showed that the Consumer Price Index (CPI) rose by 0.2% in June, and the annual rate slowed to 3.0%, the lowest level since March 2021 and much lower than the peak of 9.1% in June 2022. This indicates that inflation continues to slow significantly, and as a result, expectations for an interest rate hike by the Federal Reserve after its upcoming meeting in July have declined.

As a result, the yield on 10-year US Treasury bonds fell to 3.85% and the yields on 2-year bonds dropped to 4.75%, the lowest level since June 29th, pushing the US dollar index strongly downward, reaching a level of 100.50 points, marking its lowest daily close in a year. Therefore, we expect the moderate pace of price increases to continue in the near and medium term in commodity, stock, currency, and metal markets.

Likely, the slowdown in inflation during the first half of this year will be sufficient for the Fed to continue keeping interest rates steady in the future and wait for the effects of previous monetary tightening on the economy after an additional 25-basis-point increase in the upcoming Fed meeting, scheduled for July 26th. However, interest rate cuts are still far-fetched from our perspective until the Fed reaches its inflation target of at least 2% or 3%, which would provide some modest support for the dollar in the long term.