- EUR/USD surges to 1.0770 as the US Dollar corrects after the expected decline in the United States (US) core Personal Consumption Expenditures Price Index (PCE) data for May cemented expectations of early rate cuts by the Federal Reserve (Fed). The US PCE report showed on Friday that the core PCE inflation data, the Fed’s preferred inflation measure, decelerated expectedly to 2.6% from the prior release of 2.8%.
- According to the CME FedWatch tool, 30-day Federal Fund futures pricing data shows that the probability for rate cuts in September is 63.4%. The data also suggest the Fed is expected to deliver two rate cuts this year against one projected by policymakers in their latest dot plot.
- The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines to near 105.40.
- This week, the US Dollar is expected to remain highly volatile as various economic data are lined up for release. In Monday’s session, investors will keenly focus on the ISM Manufacturing Purchasing Managers’ Index (PMI) report for June, which will be published at 14:00 GMT.
- Economists expect factory activity to improve to 49.0 in June from the prior reading of 48.7 but remain contracted, as a figure below the 50.0 threshold separates expansion from contraction. However, the preliminary S&P Global PMI report released on June 21 showed that the US Manufacturing PMI rose to a three-month high at 51.7 from May’s reading of 51.3
- In the PMI report, investors will also focus on other sub-components, such as the New Orders Index and Price Paid, which indicate the factory outlook and change in input prices of the manufacturing sector, respectively, and will provide cues about inflation expectations
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