Fed's Potential Rate Cuts Calms Markets Amid Improving Inflation

The dollar eased slightly along with Treasury yields following U.S. price data indicating manageable inflation, potentially prompting the Federal Reserve to ease its restrictive monetary policy. The PCE price index showed minor monthly change, suggesting an improving inflation scenario. Meanwhile, the yen demonstrated notable strength, influencing currency markets.

The dollar dipped fractionally alongside Treasury yields after the release of U.S. price data that suggested minimal inflation concerns, which could ease the Federal Reserve's stance on restrictive monetary policy in the forthcoming months. The Commerce Department's PCE price index rose 0.1% in June as anticipated, following a stagnation in May, highlighting an improving inflation atmosphere that may facilitate the Fed in lowering interest rates by September.

On an annual basis, the PCE price index increased by 2.5% after a 2.6% rise in May, aligning with economist forecasts. The Fed, which closely monitors PCE price measures for monetary policy, may gain assurance from the declining inflation pressures that inflation is progressing toward its 2% target.

Simultaneously, the yen has led the currency markets this month, hitting a near three-month high of 151.945 per dollar after starting at a 38-year low of 161.96. This shift followed Bank of Japan's intervention and anticipated policy changes. In currency updates, Dollar/yen appreciated 0.23% to 154.29, the euro climbed 0.12% to $1.0857, and the dollar index remained unchanged at 104.33. Sterling surged 0.12% to $1.2866. U.S. 10-year Treasury note yields dropped by 3.1 basis points while two-year note yields also fell by 3.1 basis points.

(With inputs from agencies.)