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USD Stabilizes After Soft Inflation Data and Federal Reserve Meeting. The US Dollar (USD) stabilized after experiencing significant losses against its major rivals following the release of softer-than-expected inflation data. Market participants now turn their attention to the upcoming US economic docket, which includes the weekly Initial Jobless Claims data and the Producer Price Index (PPI) figures for May.

Federal Reserve's Policy Decision

In its June meeting, the Federal Reserve (Fed) announced it would keep the policy settings unchanged, a move widely anticipated by market participants. The revised Summary of Economic Projections, also known as the dot-plot, revealed that 4 out of 19 Fed officials did not foresee any rate cuts in 2024. In contrast, 7 officials projected a 25 basis points (bps) rate reduction, while 8 anticipated a 50 bps cut.

During the post-meeting press conference, Fed Chairman Jerome Powell acknowledged the encouraging inflation data for May but emphasized the need for additional positive data to solidify confidence in inflation moving sustainably toward the 2% target="_blank" kwlink="6384064000816950219725">target. Powell reiterated a data-dependent approach to policy, which helped the USD find some stability. Following the Fed's announcement, the S&P 500 Index gained 0.85%, the Nasdaq Composite rose by 1.3%, while the Dow Jones Industrial Average edged lower by 0.1%.

Inflation Data Impact

The Bureau of Labor Statistics reported that the annual inflation rate, measured by the change in the Consumer Price Index (CPI), declined to 3.3% in May from 3.4% in April. The annual core CPI, which excludes volatile food and energy prices, rose by 3.4%, slightly below analysts' expectations of 3.5%. Every month, the CPI remained unchanged, while the core CPI increased by 0.2%. This softer inflation data prompted a sell-off in the USD, causing the USD Index to slump below 104.50.

Forex Market Movements

USD/JPY: The yen saw small losses on Wednesday but regained ground, trading above 157.00 in the European morning on Thursday. The Bank of Japan is set to announce its monetary policy decisions during Asian trading hours on Friday.

As investors digest the latest economic data and the Fed's cautious stance, the USD's movements will likely remain closely tied to incoming data and broader market sentiment.