The U.S. dollar traded moderately lower against most major currencies on Friday, giving back most of the gains seen in the beginning of the week, with the dollar index (USDX) closing in on the 105.0 mark. The move came after Friday's PCE numbers revealed US inflation easing, prompting investors to anticipate interest rate cuts by the Fed later this year. Data showed the U.S. personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, was unchanged last month, and followed an unrevised 0.3% gain in April, data showed. In the 12 months through May, the PCE price index increased 2.6% after advancing 2.7% in April.
According to widely cited CME Fedwatch tool, a September rate cut is the most likely scenario with chances at 57.0% while for November, the possibility stands at around 49.7%.
In the energy sector, the two main benchmarks WTI And Brent, both rose by around 6% in June, as the Organization of the Petroleum Exporting Countries (OPEC) and their allies, a group known as OPEC+, extended most of its deep oil output cuts well into 2025. This triggered analyst forecasts of supply shortages in Q3, as increased summer demand for transportation and air conditioning depletes fuel reserves.
The main U.S. stock indices retreated from record levels on Friday despite data indicating cooling inflation, with focus this week turned towards comments from Fed officials and Fed chairman Jerome Powell, who is set to speak at the ECB annual forum in Portugal on Tuesday. Wednesday's release of the June meeting minutes could shed light on the Fed’s interest rate strategy, especially after their hawkish stance seen so far. However, if upcoming non-farm payrolls data shows a strong labor market, that could complicate plans for potential rate cuts in the face of inflation concerns.
Some price action could be observed later today upon the release of German preliminary CPI data, U.S. construction spending, manufacturing PMIs from the eurozone and the U.S. and a speech by ECBs president Lagarde.
EUR/USD
The EUR/USD pair entered a period of sideways movement on Friday, concluding a week of trading with minimal momentum as market participants lacked compelling reasons to significantly influence the pair's direction.
German Unemployment Change clocked in higher than expected, showing 19K German consumers were added to unemployment figures in June. The German Unemployment Rate also ticked higher to 6.0% versus the forecast hold at 5.9%.
On the U.S. side, the Core PCE Price Index inflation eased to 2.6% for the year ending May, down from the previous 2.8%. Despite the decrease in key inflation indicators, it did not prompt a significant increase in risk appetite among investors, as the figure was not sufficiently low to push the Federal Reserve (Fed) towards a faster pace of interest rate cuts.
The University of Michigan (UoM) Consumer Sentiment Index rose to 68.2 in June, up from the previous 65.6 and climbing over the forecast 65.8.