According to the report from the U.S. Labor Department, the Consumer Price Index (CPI) saw a 0.4% increase in February, aligning with the projected rise
The U.S. dollar experienced fluctuations in trading on Tuesday following the release of data indicating higher-than-expected inflation in the largest economy globally.
This led to a slight adjustment in the anticipation of a potential interest rate cut by the Federal Reserve during its June policy meeting.
Market activity was characterized by volatility, with the U.S. dollar initially surging post-data, then declining before eventually rebounding as investors processed the information. The dollar index closed with a 0.2% increase at 102.95.
According to the report from the U.S. Labor Department, the Consumer Price Index (CPI) saw a 0.4% increase in February, aligning with the projected rise. On an annual basis, the CPI showed a 3.2% gain, slightly higher than the expected 3.1% increase.
Excluding the volatile food and energy sectors, the core CPI rose by 0.4% month-on-month in February, surpassing the estimated 0.3% increase. Annually, it recorded a 3.8% gain, exceeding the forecasted 3.7% rise.
The CPI was not a significant surprise, but it is stronger than expected. While some of the details of the report were encouraging, it still indicates that we are not quite at the point that the Fed should be comfortable cutting rates, said Vassili Serebriakov, FX strategist at UBS in New York.
It probably keeps the debate alive about the June cut, but probably more immediately this plays into what the Fed will be projecting in terms of the dot plot at the next meeting. We will probably be discussing the possibility that there may be less than three cuts, Serebriakov added.
Market indicators suggest a 69% probability of a rate cut at the June policy meeting, as per the LSEG’s rate probability app, down from approximately 71% on Monday.
Additionally, expectations include two more 25 bps cuts throughout the year, potentially bringing the fed funds rate down to 4.49% by the end of 2024.
Upcoming focal points for currency investors include U.S. retail sales, reflecting consumer spending trends which have shown resilience, as well as producer prices.
